Advances in Decision Sciences (Jan 2016)

Comparison of the Datar-Mathews Method and the Fuzzy Pay-Off Method through Numerical Results

  • Mariia Kozlova,
  • Mikael Collan,
  • Pasi Luukka

Journal volume & issue
Vol. 2016


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The paper compares numerically the results from two real option valuation methods, the Datar-Mathews method and the fuzzy pay-off method. Datar-Mathews method is based on using Monte Carlo simulation within a probabilistic valuation framework, while the fuzzy pay-off method relies on modeling the real option valuation by using fuzzy numbers in a possibilistic space. The results show that real option valuation results from the two methods seem to be consistent with each other. The fuzzy pay-off method is more robust and is also usable when not enough information is available for a construction of a simulation model.