Tu, H. A., and Chiou, J. J. 2004. Jump Process and the Valuation of Internet Company─A Study of Simulation Error. NTU Management Review, 14 (2): 109-134
Anthony H. Tu, Professor, Department of Finance, National Chengchi University
Jr-Jung Chiou, Ph.D Student, Department of Finance, National Taiwan University
Abstract
Schwartz and Moon(SM)(2000) applied real options theory and capital budgeting techniques to the problem of valuing an Internet company. We extend their valuation model by including the important concern: jump process. Employing two simulation performance measure: Root-mean-square simulation error and Theil inequality coefficient, we find that the simulation error of model with jump process is significantly less than that of SM model.
Keywords
Corporate Valuation Real Options Simulation error Jump Process