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Economic Analysis: Theory and Practice

Specifics of using the Black-Scholes model to assess the investment project performance

Vol. 17, Iss. 7, JULY 2018

PDF  Article PDF Version

Received: 26 April 2018

Received in revised form: 11 May 2018

Accepted: 24 May 2018

Available online: 27 July 2018


JEL Classification: D81, G31, G32

Pages: 1285–1301


Pakhnovskaya N.M. Orenburg State University, Orenburg, Russian Federation


Mishurova A.I. Orenburg State University, Orenburg, Russian Federation


Subject The article investigates the method of real options using the Black-Scholes model.
Objectives The aim is to clarify initial parameters of the Black-Scholes model when it is applied to evaluation of return on real investments and their sources.
Methods The study draws on methods of deduction, induction, logical analysis, synthesis, and a set of statistical techniques, like groupings, mean and relative values, dynamics, a set of variate values.
Results We assess the efficiency of investment projects using the Black-Scholes model and considering different variants of model parameters interpretation, specify the mechanism of calculating the standard deviation of cash flows generated by the investment project by type of economic activity. The paper offers to expand the information base of government statistics agencies by including the indicators on completed investment projects of economic entities in statistical reports for further processing, and to define mean difference deviation of changes in cash flows of similar projects by type of economic activity.
Conclusions The Black-Scholes model is the first choice when the economic life significantly exceeds the payback period of the investment project.

Keywords: investment project, Black-Scholes model, real option, NPV, performance evaluation


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