Value Function Computation in Fuzzy Real Options by Differential Evolution

Abstract

Real options are a typical framework in economics that involves uncertainty. The definition of the value function of real options can take advantage of a model of uncertainty that includes stochastic processes and fuzzy numbers; to perform the complete analysis with american type real options, we need to compute the fuzzy extension of the value function for A special version of the multiple population differential evolution algorithm is designed to compute the level-cuts of the fuzzy extension of the multidimensional real valued function of fuzzy numbers in the resulting optimization problems. We perform some computational experiments connected with the option to defer investment, that is an American call option on the present value of the completed expected cash flows with the exercise price equal to the required outlay.