BinomialTree_MC: Binomial Real Options Pricing with Monte Carlo Simulation

In Bahram-Abediniangerabi/ConstructionAnalyticsR: Construction Data Analysis with R

Binomial Real Options Pricing with Monte Carlo Simulation

Description

This R function will provide real option prices and the probability of investment within the investment horizon using binomial lattice and monte carlo simulations.

Usage

BinomialTree_MC(S, I, Time, r, sigma, dt, k = NA, imm = TRUE, MC_loops)

Arguments

S	State Variable
I	Investment vector: Ex:cumprod(c(30, rep(1+0.06, n)))
Time	Investment Horizon (yearly)
r	Rate of Return
sigma	Fluctuations in the Price of State Variable
dt	Time Intervals within a Year
k	Risk-Adjusted Growth Factor
imm	Cashflows are collected immediately after investemnt in the same yesr if it is TRUE, otherwise collect cashflows after one year (default is TRUE)
MC_loops	Number of Monte Carlo Simulations

Value

Returns a binomial tree for the state variable "S", cashflow matrix calculated from the binomial tree and the investment cost, decision matrix for investment for different situations through the investment horizon, a binomial tree plot, and the likelihood of implementation plot.

Examples

BinomialTree_MC(S=50, I=cumprod(c(30, rep(1+0.06, 5))), Time=5, r=.07, sigma=0.15, dt=1, k=1.02, imm = FALSE, MC_loops = 1000)

Bahram-Abediniangerabi/ConstructionAnalyticsR documentation built on March 6, 2023, 7:52 a.m.