A combination of real options, simulation and decision trees for investment decisions

This thesis is concerned with the evaluation of real options whose value represents a certain flexibility of the firm to decide about company´s assets in the future. In addition to classic models which were developed for option rating, such as binomial and Black-Scholes model, which have advantages and disadvantages, there is introduced a possible combination of decision trees and simulation Monte Carlo which runs directly inside the tree. This combination can erase the disadvantages which these methods have when they are used separately for option evaluation. In this thesis there can be found an application example inspired by a real situation and there are described different possibilities of usage of the mentioned combination and there is also demonstrated an unambiguous advantage of this method and that is a bigger amount of information which is provided in comparison with standard models. It allows the company to access much more complex image of the investment. The result is also various option values according to the used technique