NUPEI | Núcleo de Pesquisa em Energia e Infraestrutura

Recent decades advances in financial theory to asset valuation and risk management have profoundly altered the way of valuing investments and manage project risks. In many situations where the company performs an irreversible investment in an environment with high degree of uncertainty, there may be a degree of managerial flexibility that gives the company the option to modify or change in any way a project during its life time. A thermal power plant, for example, gives the company an option but not an obligation to produce electricity. Learn modeling this flexibility is important to be able to estimate the plant value.

This flexibility, or real option, can significantly increase the value of the project when is considered the adjustments that can be made on the project in light of new market information, but this value is not captured by traditional methods of cash flow. In this course we will see how this method can be used in practice evolving from the traditional model of static cash flow to a dynamic model that incorporates the project uncertainty and how to value managerial flexibility by leveraging the strategic position of the company. Furthermore, we show how the uncertainty and flexibility can be used to extract advantages and limit losses.

Summary: Project Evaluation. Static and dynamic models of evaluation. Managerial Flexibility. Financial Options and Real Options. Modeling Flexibility. Determining Market Values​​. Stochastic Processes. Models of Real Options. Monte Carlo Simulation. Modeling and Applications.

Recent decades advances in financial theory to asset valuation and risk management have profoundly altered the way of valuing investments and manage project risks. In many situations where the company performs an irreversible investment in an environment with high degree of uncertainty, there may be a degree of managerial flexibility that gives the company the option to modify or change in any way a project during its life time. A thermal power plant, for example, gives the company an option but not an obligation to produce electricity. Learn modeling this flexibility is important to be able to estimate the plant value.

This flexibility, or real option, can significantly increase the value of the project when is considered the adjustments that can be made on the project in light of new market information, but this value is not captured by traditional methods of cash flow. In this course we will see how this method can be used in practice evolving from the traditional model of static cash flow to a dynamic model that incorporates the project uncertainty and how to value managerial flexibility by leveraging the strategic position of the company. Furthermore, we show how the uncertainty and flexibility can be used to extract advantages and limit losses.

Summary: Project Evaluation. Static and dynamic models of evaluation. Managerial Flexibility. Financial Options and Real Options. Modeling Flexibility. Determining Market Values​​. Stochastic Processes. Models of Real Options. Monte Carlo Simulation. Modeling and Applications.