Underlying Asset and Its Dynamics Sample Clauses

Underlying Asset and Its Dynamics. The first modeling procedure of RCP agreement is to choose the underlying asset and its dynamics. The value change of the underlying asset, BOT project, affects the RCP value because the option value varies contingent on the underlying asset over time. As the debt payment against the financial investors depends on the future cash flows as collateral in a project finance, the forecasted cash flow, which affects the project value, becomes a main source of the underlying asset, in turn, the uncertainty of the project value would be risky variable during the concession(Xxxxxxxxx et al. 1990; Xxxxxxxx. 1996). Afterward, the project value is assumed to fluctuate over time, due to the dynamic change of market conditions until the end of the concession, with a specific diffusion process, so called “Geometric Brownian Motion” process in Equation<9>(Dixit and Pindyck. 1994). This notion helps easily assume a structure for the dynamics and uncertainties of the underlying risky asset ‘project value.’  dV  u dt + σ dx <9> Where, V is market value of a completed project, u is market required rate of return by project, and σ is volatility of rate of return by project.
Sample 1
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