The real options approach to valuation - Haskayne School of Business
The real options approach to valuation - Haskayne School of Business
The real options approach to valuation - Haskayne School of Business
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Valuing American Op*ons by Simula*on: A simple least-‐squares <strong>approach</strong> • We es*mate the condi*onal expecta*on func*on by regressing discounted ex post cash flows from con*nuing on func*ons <strong>of</strong> the current (or past) values <strong>of</strong> the state variables. • <strong>The</strong> fiXed value from this cross-‐sec*onal regression is an efficient es*ma<strong>to</strong>r <strong>of</strong> the condi*onal expecta*on func*on. It allows us <strong>to</strong> accurately es*mate the op*mal s<strong>to</strong>pping rule for the op*on, and hence its current value.
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