Author Identifier (ORCID)
Atul Chandra: https://orcid.org/0000-0003-0510-9198
Abstract
Strategic projects are exposed to multiple uncertainties within a competitive environment that result in trade-off between two decisions, early investment that pre-empts competitors versus delay to allow resolution of uncertainties. Unlike the binary net present value (NPV) based decision to invest or abandon now, our multiple volatility real option games approach (MVR games) frames strategic investment decisions as a dynamic process for future options. It is a decision tree framework that computes and analyses strategic net present value (SNPV) using four MVR games modules and decision making. SNPV combines NPV with two offsetting real option and strategic values. Real option value arises from flexibility in investment decisions responding to random uncertainties. Strategic value reduces it due to uncertainty from competitive interactions between rival firms. Module 1 performs Monte Carlo simulations to obtain volatility of project value related to each risk variable. Module 2 uses multiple volatilities to build MVR games tree with project values following binomial process. When the tree terminates on option expiry, Nash equilibrium payoffs and predicted investment decision outcome (IDO) probabilities are obtained. The tree rolls back to obtain SNPV at the root to decide whether to hold the option till expiry or not. Module 3 demonstrates SNPV convergence to stable SNPV and its relationship with IDO probabilities. Module 4 conducts robust analysis of SNPV and IDO probabilities. MVR games decision to invest or abandon project includes decision problems, objective functions, trade-offs, alternative actions and preferences. MVR games are applied to real-world projects for strategic investment decisions by rival firms.
Keywords
Game theory, project valuations, real options, risk analytics, strategic investment, volatility modelling
Document Type
Journal Article
Date of Publication
6-1-2026
Volume
19
Publication Title
Decision Analytics Journal
Publisher
Elsevier
School
School of Business and Law
Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 License.
Comments
Chandra, A., & Hartley, P. R. (2026). An integrated analytics model for evaluating strategic investments under volatile conditions. Decision Analytics Journal, 19, 100709. https://doi.org/10.1016/j.dajour.2026.100709