Generalised soft multi-mode real options model (fuzzy-stochastic approach)

Researchers and practitioners are dealing intensively with the real option valuation. One of the generalised types is reversible the multi-mode American real options. These options are solved mainly by applying the stochastic discrete binomial models. Uncertainty is a typical feature of valuation, and two basic types of representation are distinguished: risk (stochastic) and imprecision (fuzzy). The fuzzy-stochastic models indicate the generalised real options modelling containing both aspects. The objective of the paper is to develop and apply the generalised fuzzy-stochastic multi-mode real options model. This model is based on fuzzy numbers, the discrete binomial model, and the decomposition principle. Input data, particularly underlying cash-flows, are given by fuzzyrandom numbers; fuzzy numbers give terminal values, risk-free rate, switching cost. Furthermore, assumptions and computation procedures are also described. The proposed optimisation problem is used for the fuzzy multi-mode real option value calculation. Results are compared with sub-problems, crisp-stochastic multi-modes real options and partial fuzzy-stochastic multi-mode real options models. A stylised illustrative operational flexibility example of comparing the fuzzy-stochastic multi-mode real options models is presented and discussed. The model can serve to valuation, decision-making, generalised sensitivity analysis and control under a fuzzystochastic environment.

Automated summary

The research focuses on the generalised fuzzy-stochastic multi-mode real options model, which utilizes discrete binomial models and fuzzy numbers to handle input data for optimization calculation. The results show the potential applications of the model in addressing uncertainty valuation, decision-making, and sensitivity analysis.