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Journal ArticleDOI

Fuzzy Real Option Evaluation of Real Estate Project Based on Risk Analysis

01 Jan 2011-Systems Engineering Procedia (Elsevier)-Vol. 1, pp 228-235
TL;DR: F fuzzy mathematics is used to assess the levels of income risk and cost risk in the real estate investment, and then adjust the relevant parameters of fuzzy real option based on the above risk assessment of real estate project, which will improve the rationality and validity of the engineering potential value evaluation.
About: This article is published in Systems Engineering Procedia.The article was published on 2011-01-01 and is currently open access. It has received 33 citations till now. The article focuses on the topics: Cost approach & Project risk management.
Citations
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Journal ArticleDOI
TL;DR: Fuzzy and hybrid methods have been increasingly used in construction risk management research and the Credal network – an extended form of Bayesian network- is found to have potential for risk assessment under uncertainty.

103 citations

Journal ArticleDOI
TL;DR: In this article, the authors provide an overview of the current literature on real options, thereby fulfilling a gap in current academic literature, and provide an extensive overview of their application to the infrastructure sector.
Abstract: Infrastructure networks are essential to support the world’s economic development. Governments around the world, in both developed and developing economies, have dedicated significant shares of the public budget to infrastructure development and refurbishment. Nevertheless, there has been an increasing concern about the selection of economically more interesting projects. The large sunk investments, as well as the uncertainty surrounding these projects, require new and more sophisticated investment analysis techniques. Simultaneously, there has been a recent trend towards increasing the flexibility in these projects to allow a more progressive adaptation to changing market conditions, thus decreasing the overall risk affecting these investments. The flexibility is introduced through real options that include the possibility of change that one develops in the planning and design stage, allowing the infrastructure (and service) to cope with future uncertainty. This paper intends to provide an overview of the current literature on real options, thereby fulfilling a gap in current academic literature. It addresses the main types of options and valuation mechanisms and provides an extensive overview of their application to the infrastructure sector.

64 citations


Cites background from "Fuzzy Real Option Evaluation of Rea..."

  • ...Tourinho (1979); Titman (1985); McDonald and Siegel (1986); Paddock, Siegel and Smith (1988); Ingersoll and Ross (1992); Dixit (1992)....

    [...]

Journal ArticleDOI
TL;DR: In this article, an economic-probabilistic model for risk analysis in technological innovation (TI) projects is presented, which integrates risk and economic analysis by quantifying both value and probability of occurrence of cash flow deviations.

40 citations

Journal ArticleDOI
TL;DR: In this paper, a conceptual model, through fuzzy cognitive mapping, is presented to identify and understand the cause-and-effect relationships between the factors that represent an obstacle to real estate investments for residential rental purposes.
Abstract: The recent economic crisis led to significant changes in the real estate market; one of which was a shift toward home rental (rather than buying). Real estate investors have an important role in the growth of the rental market. However, there are often hindrances to investing for residential rental purposes. In order to overcome these barriers, they first need to be identified and understood. With this in mind, the main focus of this investigation was the creation of a conceptual model, through fuzzy cognitive mapping, to identify and understand the cause-and-effect relationships between the factors that represent an obstacle to real estate investments for residential rental purposes. The results show that cognitive maps can be of great use for the structuring of complex decision problems, minimizing the number of factors left out of the decision making process. In particular, the tenant risk behavior, property location and associated costs (for the owner) were identified as the main obstacles to real estate investment rental propose. The practical implications of the model, as well as the advantages and limitations of the process followed, are also discussed.

38 citations


Cites background from "Fuzzy Real Option Evaluation of Rea..."

  • ...Mao and Wu (2011) Fuzzy mathematical model Adjustment of relevant parameters of options based on risk assessment....

    [...]

Journal ArticleDOI
TL;DR: Interval type-2 fuzzy capital budgeting techniques are developed by using both triangular and trapezoidal interval type- 2 fuzzy sets and the results show that the techniques produce consistent outputs, which means that the developed techniques can be used interchangeably.
Abstract: Discounted cash flows methods are very pop- ular in justifying investments. Uncertainty in investment parameters always exists and is inevitable. The fuzzy set theory is capable to capture this uncertainty through the membership functions of these parameters. However, or- dinary fuzzy sets are criticized for having one single membership value for each certain parameter value. To remove this criticism, type-2 fuzzy sets were proposed. In this paper, we developed interval type-2 fuzzy capital budgeting techniques by using both triangular and trape- zoidal interval type-2 fuzzy sets. The developed techniques are interval type-2 fuzzy net present value analysis, interval type-2 fuzzy future value analysis, and interval type-2 fuzzy equivalent uniform annual value analysis. These techniques are applied to a part of a real life investment project. The results show that the techniques produce consistent outputs, which means that the developed tech- niques can be used interchangeably.

36 citations


Cites background from "Fuzzy Real Option Evaluation of Rea..."

  • ...[16], Mao and Wu [34], You et al....

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References
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Journal ArticleDOI
TL;DR: The interval-valued possibilistic mean value is defined and the variance of linear combination of fuzzy numbers can be computed in a similar manner as in probability theory.

763 citations

Journal ArticleDOI
TL;DR: In this article, the authors used fuzzy logic and fuzzy analytical hierarchy process (AHP) to address the limitations of traditional failure mode and effect analysis (FMEA) for risk management in the construction industry.
Abstract: Failure mode and effect analysis (FMEA) is recognized as one of the most beneficial techniques in reliability programs. FMEA is a structured technique that can help in identifying all failure modes within a system, assessing their impact, and planning for corrective actions. Although this technique has been widely used in many industries, it has some limitations. The purpose of this paper is to extend the application of FMEA to risk management in the construction industry. Fuzzy logic and fuzzy analytical hierarchy process (AHP) are used to address the limitations of traditional FMEA. In essence, this method explores the concept of fuzzy expert systems to map the relationship between impact (I), probability of occurrence (P), and detection/control (D) and the level of criticality of risk events. A case study is presented to validate the concept. The results obtained confirm the capability of fuzzy FMEA and fuzzy AHP to address several drawbacks of the traditional FMEA application. The use of this approach can support the project management team to establish corrective actions in a timely manner.

272 citations

Journal ArticleDOI
01 Aug 2005
TL;DR: A Web-based prototype F DSS is designed and developed to assist EC project managers in identifying potential EC risk factors and the corresponding project risks and a risk analysis model for EC development using a fuzzy set approach is proposed and incorporated into the FDSS.
Abstract: This paper describes the development of a fuzzy decision support system (FDSS) for the assessment of risk in e-commerce (EC) development. A Web-based prototype FDSS is designed and developed to assist EC project managers in identifying potential EC risk factors and the corresponding project risks. A risk analysis model for EC development using a fuzzy set approach is proposed and incorporated into the FDSS. The results of an evaluation indicate that the prototype performs to expectations.

198 citations

Journal ArticleDOI
TL;DR: This paper proposes an efficient algorithm to compute fuzzy weighted average, which turned out to be superior to the previous works by reducing the number of comparisons and arithmetic operations to O(n log n).

142 citations

Journal ArticleDOI
TL;DR: In this article, the authors investigated the transfer of general real options theory through an examination of academic results in the field of real estate development and came to the conclusion that current research generates highly academic-abstract results with limited practical value.
Abstract: The interpretation and valuation of real options by means of options pricing theory can be regarded as a relatively new paradigm of investment theory. Option pricing theory based investment valuation represents a sound theoretical basis and offers principally a simple decision base. The approach recognises entrepreneurial flexibility and risk explicitly. It implies a positive correlation between flexibility respectively uncertainty and the value of options. Traditional deterministic‐dynamic standard methods of valuation are not able to value flexibility or risk effectively so that option values are adequately reflected. As property investors gradually embrace modern financial concepts it is clear that real estate valuation theory will have to change. One of the most promising areas that could have an important implication on the further development of valuation is the application of the real options paradigm. The author investigates the transfer of general real options theory through an examination of academic results in the field of real estate development. He comes to the conclusion that current research generates highly academic‐abstract results with limited practical value. So far a limited number of quantitative studies regarding the valuation real estate projects with the real options method have been conducted. Practical valuations have yet to be comprehensively carried out. For doing so, further research concerning the basic prerequisites of real options theory has to be undertaken.

66 citations