Title: Project Evaluation under Uncertainty: From Minimal Martingale
Measures to Implementation.

Speaker: Jorge P. Zubelli (IMPA)

Abstract:
Industrial strategic decisions have evolved tremendously in the last
decades towards a higher degree of quantitative analysis. Such
decisions require taking into account a large number of uncertain
variables and volatile scenarios, much like financial market
investments. Furthermore, they can be evaluated by comparing to
portfolios of investments in financial assets such as in stocks,
derivatives and commodity futures. This revolution led to the
development of a new field of managerial science known as Real
Options.
The use of Real Option techniques incorporates also the value of
flexibility and gives a broader view of many business decisions that
brings in techniques from quantitative finance and risk management.
Such techniques are now part of the decision making process of many
corporations and require a substantial amount of mathematical
background. Yet, there has been substantial debate concerning the use
of risk neutral pricing and hedging arguments to the context of
project evaluation. We discuss some alternatives to risk neutral
pricing that could be suitable to evaluation of projects in a
realistic context with special attention to projects dependent on
commodities and non-hedgeable uncertainties. More precisely, we make
use of a variant of the hedged Monte-Carlo method of Potters, Bouchaud
and Sestovic to tackle strategic decisions. This leads to interesting
numerical analysis questions and to connections with BSDEs.