Abstract
We build a Conditional Real Options model VORC which allows for cashflows to be probabilistic and contingent on the average behavior of an external variable; and we apply our model to the crude oil market where the inflows on an investment project are contingent on the state of the base - the difference between the futures contract on an underlying asset and it's price for immediate delivery at present (or spot price) -. Our main result is that the VORC is a better criteria when evaluating projects with conditional, stochastic cashflows.
Original language | Spanish |
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Pages (from-to) | 329-348 |
Number of pages | 20 |
Journal | Trimestre Economico |
Volume | 74 |
Issue number | 2 |
DOIs | |
State | Published - 2007 |