|29th IBIMA Conference
3 - 4 May 2017
Management of Option Investment Projects: Theory and Practice
Leonid Baev, Olga Egorova and Sergei Aliukov
The present paper considers the problem of managing investment projects as multistage processes in the conditions of a high uncertainty of their implementation environment. It emphasizes topicality of the approach to evaluation and management of investment projects in terms of the theory of real options, which do not consider uncertainty only as a source of risks but also as a potential opportunity of gaining additional value, in case of a relative preparation at the planning and implementation stages. It is shown in the paper that the main unsolved problem of the real option valuation is a correct evaluation of the probability of possible project development paths in the conditions of an objective absence of a priori statistical information. The paper offers a method, which allows to obtain such valuations based on the binary options theory and T. Saaty’s analytic hierarchy process (AHP). The paper also describes a procedure of expert project examination by means of the AHP to obtain quantitative evaluations of relative project development probabilities in accordance with the “optimistic” and “pessimistic” scenarios is each node of the binominal decision tree. It contains a realistic example of a practical application of the authors’ method.