title: Features of the Project and Risk Premium in Investment Decision Making
metadata.name: dc.contributor.author
metadata.value: Okulov, Vitaly L.
metadata.lang: -
metadata.name: dc.contributor.author
metadata.value: Khafizova, Karina R.
metadata.lang: -
metadata.name: dc.date.accessioned
metadata.value: 2018-08-07T09:18:23Z
metadata.lang: -
metadata.name: dc.date.available
metadata.value: 2018-08-07T09:18:23Z
metadata.lang: -
metadata.name: dc.date.issued
metadata.value: 2018-06
metadata.lang: -
metadata.name: dc.identifier.citation
metadata.value: Okulov V. L., Khafizova K. R. Features of the Project and Risk Premium in Investment Decision Making. Vestnik of Saint Petersburg University. Management, 2018, vol. 17, issue 2, pp. 147–167.
metadata.lang: en_GB
metadata.name: dc.identifier.other
metadata.value: 10.21638/11701/spbu08.2018.201
metadata.lang: -
metadata.name: dc.identifier.uri
metadata.value: http://hdl.handle.net/11701/14689
metadata.lang: -
metadata.name: dc.description.abstract
metadata.value: The goal of the paper is to find out how significant can be the impact of the project features (such as term structure of payments or degree of operating leverage) on risk premium size in investment decision making. To calculate a fair risk premium for specific risks of the project we use a decision-making criterion on the basis of value-at-risk (VaR). The size of premium is estimated by Monte-Carlo simulation methods for a number of contingent projects that differ from each other either by term structure of payments or operating leverage. The results of our calculations show that the size of a specific risk premium is largely determined by the degree of operating leverage, but practically does not depend on term structure of payments. The results obtained in this paper are based on the assumption that managers act in accordance with the criterion of equality of VaR for the project future payments and for the future value of the best alternative investments. The paper discusses the possibility of using the VaR criterion and Monte-Carlo simulations in corporate practice for evaluating investment decisions. Unlike the traditional NPV method when market risk is set exogenously via the project beta, the simulation modeling allows to find out the market alternative with risk that equals to the risk of the project. The originality of the research lies in the application of a new criterion for investment decision making, which takes into account the company’s tolerance to risk. Based on this criterion, it is possible to justify the use of markups to a discount rate, which is often done by companies in practice.
metadata.lang: en_GB
metadata.name: dc.description.sponsorship
metadata.value: This study was supported by St Petersburg State University, research project No 16.23.1460.2017 "Strategic Finance: Theoretical Approaches and International Practice".
metadata.lang: en_GB
metadata.name: dc.language.iso
metadata.value: ru
metadata.lang: en_GB
metadata.name: dc.publisher
metadata.value: St Petersburg State University
metadata.lang: en_GB
metadata.name: dc.relation.ispartofseries
metadata.value: Vestnik of St Petersburg University. Management;Volume 17; Issue 2
metadata.lang: -
metadata.name: dc.subject
metadata.value: investment project
metadata.lang: en_GB
metadata.name: dc.subject
metadata.value: Monte-Carlo simulation
metadata.lang: en_GB
metadata.name: dc.subject
metadata.value: value-at-risk
metadata.lang: en_GB
metadata.name: dc.subject
metadata.value: specific risk premium
metadata.lang: en_GB
metadata.name: dc.subject
metadata.value: operating leverage
metadata.lang: en_GB
metadata.name: dc.subject
metadata.value: structure of payments
metadata.lang: en_GB
metadata.name: dc.title
metadata.value: Features of the Project and Risk Premium in Investment Decision Making
metadata.lang: en_GB
metadata.name: dc.type
metadata.value: Article
metadata.lang: en_GB
resources.filename: 01-Okulov.pdf
resources.url: https://dspace.spbu.ru/bitstream/11701/14689/1/01-Okulov.pdf
resources.format: Adobe PDF
resources.size: 1,21 MB