Skewness and Kurtosis in the Binomial Model for Assessing Real Options: an application case for technological firms

The paper proposes a real option assessment model based on the binomial model using the Edgeworth transformation (Rubinstein, 1998) for incorporating higher stochastic orders, in particular for certain types of organizations, like technology based firms, where twin financial portfolios, markets benchmarks and the non-Gaussian stochastic process, are unavailable. The development is first described, followed by its application on university technological spin-off evaluation, sensitivity, skewness - kurtosis and showing the impact on the value of the project. Finally, it concludes with the limitations and advantages of the valuation proposal that summarizes the simplicity of the binomial model and incorporating higher order moments in underlyings with non-Gaussian processes. (C) 2013 Universidad ICESI. Published by Elsevier Espana. All rights reserved.