Applying jump-diffusion processes to liquidate and convert venture capital |
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Authors: | Lin Tyrone T Ko Chuan-Chuan Chang Chia-Wen |
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Institution: | 1.Department of International Business, National Dong Hwa University, No. 1, Sec. 2, Da Hsueh Rd., Shou-Feng, Hualien, 974, Taiwan ;2.Institute of Business & Management, National Chao Tung University, Taipei, Taiwan ;3.Graduate School of Management, Ming Chuan University, Taipei, Taiwan ; |
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Abstract: | This study attempts to apply real options and expand the model designed by Lin and Huang Lin, T.T., Huang, Y.T.: J. Technol.
Manage. 8(3), 59–78 (2003)], which helps venture capital (VC) companies to optimize project exit decisions. The expected discounted
factor and a jump-diffusion process combine to assess the value of a start-up company, and determine the threshold of the
exit timing of liquidation or convertibility for establishing the optimal disinvestment evaluation model for VC companies.
When the project value is below VL*V_L^\ast, the VC company carries out liquidation, but when the project value exceeds VC*V_C^\ast, the VC company performs convertibility. The project value is ranging between (VL *,VC*)\left({V_L ^\ast,V_C^\ast}\right), and the best choice is holding the decision and waiting to carry out the rights of liquidation and convertibility next time.
Besides, this work attempts to identify the expected discounted time in terms of the investment time for VC companies. |
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