Real Option Pricing for the Target Firm in Merger Ac&quisition：LSM Simulation Analysis Based on Prospect Theory
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| Title | Real Option Pricing for the Target Firm in Merger Ac&quisition：LSM Simulation Analysis Based on Prospect Theory
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| Author | Ge Xiangyu, Zhou Yanli, Tian Tianhai and Wu Yang |
| Organization | School of Statistics and Mathematics, Zhongnan University of Economics and Law; Department of Mathematics and Statistics, Curtin University of Technology, Australia;School of Mathematics Science, Monash University, Australia |
| Email | xiangyu_ge@163.com,yanli_zhou@sina.com,tianhai.tian@monsh.edu,yyjf1988@163.com |
| Key Words | Target Firm Valuation; Real Option; Option Pricing Driven By Jump-diffusion Process; Prospect Theory; Least-Square Monte Carlo (LSM) Simulation Approach |
| Abstract | In this paper, we establish the real option pricing model on the basis of real options theory and the real option pricing model with jump diffusion process under the condition of exogenous competition for the valuation of the target firm in merger & Acquisition. Furthermore, taking into consideration the compact of limited rationality of the decision makers on valuing target firm, the real option behavioral pricing model driven by jump-diffusion process and based on prospect theory is developed. Finally, we conduct case study of a typical example selected in the domestic Merger & Acquisition market. We apply the real option behavioral pricing model, simulate by means of least-square Monte Carlo (LSM) simulation approach, and obtain the more reasonable estimated value of the target firm. |
| Serial Number | WP317 |
| Time | 2012-08-06 |
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