Economic Analysis: Theory and Practice
 

Specifics of using the Black-Scholes model to assess the investment project performance

Vol. 17, Iss. 7, JULY 2018

Received: 26 April 2018

Received in revised form: 11 May 2018

Accepted: 24 May 2018

Available online: 27 July 2018

Subject Heading: INVESTMENT ANALYSIS

JEL Classification: D81, G31, G32

Pages: 1285–1301

https://doi.org/10.24891/ea.17.7.1285

Pakhnovskaya N.M. Orenburg State University, Orenburg, Russian Federation
550349@mail.ru

https://orcid.org/0000-0002-8653-7225

Mishurova A.I. Orenburg State University, Orenburg, Russian Federation
www.stu.ru_5032@mail.ru

https://orcid.org/0000-0002-2748-4530

Subject The article investigates the method of real options using the Black-Scholes model.
Objectives The aim is to clarify initial parameters of the Black-Scholes model when it is applied to evaluation of return on real investments and their sources.
Methods The study draws on methods of deduction, induction, logical analysis, synthesis, and a set of statistical techniques, like groupings, mean and relative values, dynamics, a set of variate values.
Results We assess the efficiency of investment projects using the Black-Scholes model and considering different variants of model parameters interpretation, specify the mechanism of calculating the standard deviation of cash flows generated by the investment project by type of economic activity. The paper offers to expand the information base of government statistics agencies by including the indicators on completed investment projects of economic entities in statistical reports for further processing, and to define mean difference deviation of changes in cash flows of similar projects by type of economic activity.
Conclusions The Black-Scholes model is the first choice when the economic life significantly exceeds the payback period of the investment project.

Keywords: investment project, Black-Scholes model, real option, NPV, performance evaluation

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