High tech firms valuation: risk analysis and displaced binomial model

High tech firms valuation: risk analysis and displaced binomial model

Abstract:

The paper shows a valuation model integrating scenarios technique, real option theory and sensibility analysis for a startup investment, mainly in high tech firms (HTF).
The proposed model is a suitable alternative for these kinds of projects since: (a) It uses the scenarios technique for estimating the displaced volatility because of the inexistence of mimic financial assets; (b) it allows forecasting negative values for the project because the model gives up the lognormal process, a key aspect in the abandon decision; (c) it permits sensitivity analysis using the displaced parameter and volatility.

Keywords: valuation, high tech firms, scenarios, real options, displaced binomial model.