Valuing Risky Projects using Mixed Asset Portfolio Selection Models
نویسندگان
چکیده
We examine the valuation of projects in a setting where an investor can invest in a portfolio of private projects as well as in securities in financial markets, but where exact replication of project cash flows in financial markets is not necessarily possible. We consider both single-period and multi-period models, and develop an inverse optimization procedure for valuing projects in this setting. We show that the valuation procedure exhibits several important analytical properties, for example, that project values for a mean-variance investor converge towards prices given by the capital asset pricing model. We also conduct several numerical experiments.
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