Fuzzy Decision-Making Model for Risk Investment Projects

Abstract

In the process of risk investment decision-making, real option which is one of the key issues in the research of finance engineering is very important to enforce flexibility of management decision. As for appraising methodology, the real option approach is used. However, The investment circumstance is always vague. That is to say, the information we need is incomplete. The uncertainty influences the real option valuation by all appearances. In this paper we take into account the uncertainty of the up and down jump factors of underling assets, which are estimated by triangular fuzzy numbers. While pricing for the real option, we use the binomial model and the risk-neutral valuation approach, and then derive the risk-neutral probability intervals. As a result, we obtain a decision-making model for risk investment projects under vague circumstance. It is beneficial for the evaluation of risk-investment and useful for avoiding the mistaken investment decision-making.Finality, we provide a corresponding example analysis.