Numerical methods for contingent claims analysis of investment decisions

Abstract

In this thesis I examine the numerical methods used in option valuation with analysis focusing on the more complex options associated with investment decisions. Two options implicit in many projects are identified and analyzed: i) the option to halt construction of a project, and ii) the option to shut down the production lines once the project is complete. The partial differential equations governing the values of these two options are derived, discretized, and solved using numerical techniques.