International Journal of Nonlinear Analysis and Applications

Designing an optimal model for choosing real options in knowledge-based companies (content analysis approach and Black-Scholes model)

Document Type : Special issue editorial

Authors

1 Department of Management, Economics and Accounting, Tabriz Branch, Islamic Azad University, Tabriz, Iran

2 Department of Management and Accounting, Qazvin Branch, Islamic Azad university, Qazvin, Iran

3 Department of Management, Hadishahr Branch, Islamic Azad university, Hadishahr, Iran

4 Department of Accounting, Marand Branch, Islamic Azad university, Marand, Iran

Abstract

Real option is a systematic approach in which economic modeling can be done using financial theories, economic analysis, operations research, decision theory, and statistics. The aim of this study is to design an optimal model for selecting real  options in knowledge-based companies. This research is conducted with a mixed approach in two parts: qualitative and quantitative. In the qualitative section, by interviewing tools and qualitative content analysis method, the components of real option selection in knowledge-based companies are identified. The statistical population in this section includes university specialists and experts, managers of knowledge-based companies and competent individuals with executive positions in these companies who have executive backgrounds at decision-making levels. The sample size is obtained by purposive sampling equal to 12 people. Based on the results of the qualitative section, 11 main components and 103 sub-components are identified to select real options in knowledge-based companies. After identifying the components of real options’ valuation in knowledge-based companies, the obtained qualitative model is tested by the Black-Scholes method. To this end, the qualitative section variables are converted to computable data for knowledge-based companies and then, the relevant statistical data are collected for 50 knowledge-based companies. Quantitative section variables include operating profit, depreciation, capital expenditures, working capital and, finally, the free cash flow of knowledge-based companies. The results show that the Black-Scholes method has more valuation than the traditional method.

Keywords

[1] K.I. Amin and V.K. Ng, Option valuation with systematic stochastic volatility, J. Finance 48 (1993), 881–910.
[2] T.G. Andersen and T. Bollerslev, Heterogeneous information arrivals and return volatility dynamics: Uncovering the long-run in high frequency returns, J. Finance 52 (1997), 975–1005.
[3] F. Black and M. Scholes, The pricing of options and corporate liabilities, J. Pol. Econ. 81 (1973), 637–654.
[4] P.P. Boyle, A lattice framework for option pricing with two state variables, J. Financ. Quant. Anal. 23 (1988), 1–12.
[5] Q. Chen, H.M. Baskonus, W. Gao and E. Ilhan, Soliton theory and modulation instability analysis: The ivancevic option pricing model in economy, Alexandria Eng. J. 61 (2022), no. 10, 7843–7851.
[6] J.C. Cox, S.A. Ross and M. Rubinstein, Option pricing: A simplified approach, J. Financ. Econ. 7 (1979), 229–263.
[7] J.W. Creswell and C.N. Poth, Qualitative inquiry and research design: Choosing among five approaches, Sage Publications, 2016.
[8] H. Danaeifard, S.M. Alvani and A. Azar, Qualitative research methodology in management: A comprehensive approach, Eshraghi Publishing, 2019.
[9] J.C. Duan, The GARCH option pricing model, Math. Finance 5 (1995), 13–32.
[10] B. Dumas, J. Fleming and R.E. Whaley, Implied volatility functions: Empirical tests, J. Finance 53 (2002), 2059–2106.
[11] Y. He and D. Shi, Study on grounded theory in social surveys, World Surv. Res. 5 (2009), 46–48.
[12] F. Heibati, N. Gholam-Ali and H. Hassanzadeh, Application of constraint theory in company evaluation based on real option, Financ. Eng. Secur. Manag. 1 (2010), no. 1, 1–17.
[13] S.L. Heston, A Closed-form solution for options with stochastic volatility with applications to bond and currency options, Rev. Financ. Stud. 6 (1993), no. 2, 327–343.
[14] J. Hull and A. White, The pricing of options on assets with stochastic volatilities, J. Finance 42 (1987), 281–300.
[15] L. Kobari, S. Jaimungal and Y. Lawryshyn, A real options model to evaluate the effect of environmental policies on the oil sands rate of expansion, Energy Econ. 45 (2014), 155–165.
[16] S. Lin and X.J. He, A regime switching fractional Black–Scholes model and European option pricing, Commun. Nonlinear Sci. Numer. Simul. 85 (2020), 105222.
[17] J.D. Macbeth and L.J. Merville, An empirical examination of the Black-Scholes call option pricing model, J. Finance 34 (1979), 1173–1186.
[18] K. Markey, M. Tilki and G. Taylor, Practicalities in doctorate research of using grounded theory methodology in understanding nurses’ behaviours when caring for culturally diverse patients, Nurse Educ. Practice 44 (2020), 102751.
[19] R.C. Merton, Theory of rational option pricing, Bell. J. Econ. Manag. Sci. 4 (1973), 141–183.
[20] U.A. M¨uller, M.M. Dacorogna, O.V. Pictet, Heavy tails in high-frequency financial data, A Practical Guide to Heavy Tails: Statist. Tech. Appl. 4 (1998), 55–78.
[21] V. Naik, Option valuation and hedging strategies with jumps in the volatility of asset returns, The Journal of Finance, 48 (1993), 1969–1984.
[22] H. Najafi, G. Nikjoo and K. Salmani, Presenting a model for pricing parallel oil forex bonds based on Black Scholes option pricing model, Quarterly J. Financ. Eng. Secur. Manag. 9 (2015), no. 36, 323–337.
[23] H. Nazeman and A.R. Eslamifar, Knowledge-based economics and sustainable development (design and test of an analytical model with global data), J. Knowledge Dev. 17 (2010), no. 33, 184–214.
[24] S. Picozzi and B.J. West, Fractional Langevin model of memory in financial time series, Phys. Rev. E 65 (2002), no. 3, 037106.
[25] S.H. Poon, A practical guide to forecasting financial market volatility, England, Wiley Finance, 2005.
[26] R.J. Rendleman and B.J. Bartter, Two-state option pricing, J. Finance 34 (1979), 1093–1110.
[27] M. Rubinstein, Displaced diffusion option pricing, J. Finance 38 (1983), 213–217.
[28] L.O. Scott, Option pricing when the variance changes randomly: Theory, estimation, and an application, J. Financ. Quant. Anal. 22 (1987), 419–438.
[29] L.O. Scott, Pricing stock options in a jump-diffusion model with stochastic volatility and interest rates: Applications of Fourier inversion methods, Math. Finance 7 (2002), 413–426.
[30] J. Szolgayova, A. Golub and S. Fuss, Innovation and risk-averse firms: Options on carbon allowances as a hedging tool, Energy Pol. 70 (2014), 227–235.
[31] R. Tehrani, S.M. Mirlouhi and M.R. Golkani, Calculating the value of real options with different approaches in the Tehran stock exchange, Asset Manag. Financ. 8 (2020), no. 2, 1–12.
[32] J. Wang, S. Wen, M. Yang and W. Shao, Practical finite difference method for solving multi-dimensional Black-Scholes model in fractal market, Chaos, Solitons Fractals 157 (2022), 111895.
[33] W.L. Xiao, W.G. Zhang, X. Zhang, X. Zhang, Pricing model for equity warrants in a mixed fractional Brownian environment and its algorithm, Phys. A: Statist. Mech. Appl. 391 (2012), no. 24, 6418–6431.
[34] H.J. Zhang, M.S. Duan and Z. Deng, Have China’s pilot emissions trading schemes promoted carbon emission reductions? The evidence from industrial subsectors at the provincial level, J. Clean. Prod. 234 (2019), 912–924.
[35] Z.Y. Zhang, Y. Hao and Z.N. Lu, Does environmental pollution affect labor supply? An empirical analysis based on 112 cities in China, J. Clean. Prod. 190 (2018), 378–387.
[36] J. Zhang and D. Ma, Application of grounded theory method in management, 2 (2009), 115–117.
International Journal of Nonlinear Analysis and Applications
Volume 13, Issue 2
July 2022
Pages 3017-3029
  • Receive Date: 08 January 2022
  • Revise Date: 22 March 2022
  • Accept Date: 26 April 2022