A Fuzzy Group Decision Approach to Real Option Valuation

Authors:
Chen Tao;Zhang Jinlong;Yu Benhai;Liu Shan
Affiliations:
School of management, Huazhong University of Science and Technology, Wuhan, 430074, China;School of management, Huazhong University of Science and Technology, Wuhan, 430074, China;School of management, Huazhong University of Science and Technology, Wuhan, 430074, China;School of management, Huazhong University of Science and Technology, Wuhan, 430074, China
Venue:
RSFDGrC '07 Proceedings of the 11th International Conference on Rough Sets, Fuzzy Sets, Data Mining and Granular Computing
Year:
2009

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Abstract

This paper develops a comprehensive but simple methodology for valuating IT investment using real options theory under the fuzzy group decision making environment. The proposed approach has the following advantages: (1) It does not need to formulate the distribution of expected payoffs, thus complex estimation tasks can be avoided. (2) It allows multiple stakeholders be involved in the estimation of real option value, therefore could alleviate the bias from particular evaluator's personal preference and could help decision makers achieve a more reliable valuation of the target investment. The author provides numerical illustration on the procedures mentioned above and discusses the strengths and possible extensions of this hybrid approach to IT investment analysis.