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Finance and Credit
 

Development and justification of financial plans for upgrading company's equipment based on methods of real options valuation

Vol. 19, Iss. 25, JULY 2013

Available online: 2 July 2013

Subject Heading: MODELING IN ECONOMICS

JEL Classification: 

Trifonov U.V. Doctor of Economics, Professor, Dean of the Economic Faculty, the Nizhniy Novgorod State University named after N.I. Lobachevsky
decanat@ef.unn.ru

Yashin S.N. Doctor of Economic Sciences, Professor, Head of the Department of Innovation Management, the Nizhniy Novgorod State University named after N.I. Lobachevsky
jashin@52.ru

Koshelev E.V. PhD in Economics, Associate Professor, the Department of State and Municipal Management, the Nizhniy Novgorod State University named after N.I. Lobachevsky
ekoshelev@yandex.ru

A method for decision of the problem of financial mission statement to evaluate effects of projected upgrading equipment of a manufacturing company is offered. For this the project is analyzed as an Asian real option with constant business volatility. The problem is solved using the Black-Scholes model, a refined and modified binomial model and a modified trinomial model. It is demonstrated that the most accurate valuation of the option and the entire project in general is provided by the trinomial model.

Keywords: upgrading equipment, real option valuation, Asian option, constant volatility, binomial model, trinomial model

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ISSN 2311-8709 (Online)
ISSN 2071-4688 (Print)

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