Findings from A.S. Berk et al Has Provided New Information about Risk Management (Superiority of Monte Carlo simulation in valuing real options…

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Findings from A.S. Berk et al Has Provided New Information about Risk Management (Superiority of Monte Carlo simulation in valuing real options within public-private partnerships)

By a News Reporter-Staff News Editor at Insurance Weekly News -- Investigators publish new report on Risk Management. According to news originating from Ljubljana, Slovenia, by VerticalNews correspondents, research stated, "Monte Carlo simulation and geometric Brownian motion are the two methods employed for valuation of guarantees in public-private partnership projects. In this article we argue that any guarantee within the projects that exhibit non-constant growth rate of demand should always be evaluated using Monte Carlo simulation."

Our news journalists obtained a quote from the research, "Namely, we find that in a typical infrastructure project geometric Brownian motion underestimates cash flows and overestimates the value of the granted guarantee of public partner. In economic terms, our results imply more implemented projects, which are urgently needed, and thus a higher impact on economic well-being through better risks sharing mechanisms and project risk management."

According to the news editors, the research concluded: "We also contribute to the literature by arguing that proper capture of the growth rate is much more important than the proper capture of volatility, already reported in the field."

For more information on this research see: Superiority of Monte Carlo simulation in valuing real options within public-private partnerships. Risk Management-Journal of Risk Crisis and Disaster, 2018;20(1):1-28. Risk Management-Journal of Risk Crisis and Disaster can be contacted at: Palgrave Macmillan Ltd, Brunel Rd Bldg, Houndmills, Basingstoke RG21 6XS, Hants, England.