Journal of Applied Mathematics and Decision Sciences
Volume 2009 (2009), Article ID 238196, 14 pages
Research Article

A Fuzzy Pay-Off Method for Real Option Valuation

1IAMSR, Åbo Akademi University, Joukahaisenkatu 3-5 A, 20520 Turku, Finland
2Turku Centre for Computer Science, Joukahaisenkatu 3-5 B, 20520 Turku, Finland

Received 20 November 2008; Revised 22 February 2009; Accepted 19 March 2009

Academic Editor: Lean Yu

Copyright © 2009 Mikael Collan et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.


Real option analysis offers interesting insights on the value of assets and on the profitability of investments, which has made real options a growing field of academic research and practical application. Real option valuation is, however, often found to be difficult to understand and to implement due to the quite complex mathematics involved. Recent advances in modeling and analysis methods have made real option valuation easier to understand and to implement. This paper presents a new method (fuzzy pay-off method) for real option valuation using fuzzy numbers that is based on findings from earlier real option valuation methods and from fuzzy real option valuation. The method is intuitive to understand and far less complicated than any previous real option valuation model to date. The paper also presents the use of number of different types of fuzzy numbers with the method and an application of the new method in an industry setting.