Paper Info
Title
Robust net present value
Abstract
Considering the variance and correlation of uncertain parameters, this study presents a new approach to computing net present value (NPV) of the financial processes. The changes of the uncertain parameters are postulated in a closed and convex region called the uncertainty region. The size and shape of the uncertainty region is selected based on the historical data and risk-taking or risk-aversion of the investor. The variance of cash flows is of high significance in analyzing the sensitivity of NPV. The model proposed in this study is highly reliable because of entering the covariance of historical data. In this study, using the robust approach, the mathematical formulation computing the robust NPV is presented. Programming of the presented robust NPV was done in C++ programming environment. The robust NPV is analyzed through presenting numerical examples. Simulating 10,000 random scenarios of uncertain parameters demonstrates that in circumstances where the traditional approach to computing NPV is doomed to a percentage of failure to make decisions, the robust approach never faces failure. The more positive the skewness in the scenarios produced, the higher is the probability of encountering failure in the traditional approach; whereas the robust approach still does not fail.
Year
DOI
Venue
2011
10.1016/j.mcm.2011.02.005
Mathematical and Computer Modelling
Keywords
Field
DocType
convex region,traditional approach,robust approach,historical data,present value,encountering failure,uncertain parameter,robust npv,future cash flows,net present value,cash flow,new approach,uncertainty region,risk taking,risk aversion
Econometrics,Mathematical optimization,Skewness,Probability distribution,Net present value,Mathematics,Cash flow,Covariance
Journal
Volume
Issue
ISSN
54
1-2
Mathematical and Computer Modelling
Citations 
PageRank 
References 
1
0.38
11
Authors
2
Name
Order
Citations
PageRank
Payam Hanafizadeh125720.89
Vahideh Latif210.38