Plenary Lecture

Financial Instruments for Mega Investments in the Aftermath of the Global Crisis

Professor Mircea Boscoianu
Military Technical Academy of Bucharest
81-83 George Cosbuc, Bucharest
Romania
E-mail: mircea_boscoianu@yahoo.co.uk

Abstract: Mega investments are different from financial investments and other types of real investments. Mega investments have a long building time and are not productive during a significant period between the investment decision and the completion of the construction. During building the circumstances may significantly change and this uncertainty is difficult to be explained by using traditional instruments. A robust decision support needs arising from the main characteristics (large irreversible initial investment, long economic life, long term) of mega investments.
The traditional theory of investment does not consider irreversibility/ uncertainty; in this case is not included any managerial flexibility ingredient (the value of waiting, the possibility to postpone irreversible investments). In this case, the standard profitability measures will tend to give inappropriate indicators for investment and entry decisions (Barham, Chavas, Klemme, 1994). Pindyck (1991) demonstrated that an irreversible investment opportunity is much like a financial call option. Valuing real investments with option valuation models (Black-Scholes option pricing, Cox-Ross-Rubinstein binomial option pricing) use the assumptions that models may not be fully compatible with real investments. Pindik proposed an efficient method to include the option value of waiting in the traditional profitability analysis. In this case, the positive potential of the investment is taken into consideration by using real option analysis (ROA). In a new generation of models, ROA is mixed with soft computing techniques like fuzzy logic (Zmeskal, 2001, Collan, Carlsson, Majlender, 2003) or with DSS tools (Alcaraz, Heikkila, 2003).
Efficient financial strategies should also respond to the main problems of the markets related to the global crisis: the private loan failure, the liquidity crunch. In this case, government appears to be the only currently available and dependable remedy.
A new framework based on the mixing of ROA with fuzzy logic (ROA-FL) is presented. Based on the critical review of the traditional investment valuation methods it is demonstrated that this framework offer a better valuation and provide a robust decision support for the selection of financial instruments for mega investments in the aftermath of the global crisis.
Keywords: mega investments, global crisis, real options analysis (ROA) fuzzy logic (FL).

Brief Biography of the Speaker:
Mircea Boscoianu was born at 29.04.1966 in Suceava, Romania. He graduated the Faculty of Integrated Systems of Armament, Department of Aerospace Engineering in the Military Technical Academy of Bucharest (1990) and the Faculty of Cybernetics in the Academy of Economic Studies of Bucharest (1996). His first PhD was in Aerospace Engineering (1993-1999) in Military Technical Academy and the second in Cybernetics and Statistics (2000-2003) in the Academy of Economic Studies of Bucharest.
His research and teaching activities (1990-2008, Military Technical Academy, Dept of Integrated Aeronautical Systems) covered an extended area of Aerospace Engineering, Cybernetics, Statistics and interdisciplynary domains like mini and micro Unmamnned Aerial Vehicles, Risk Management, Financial Management, Management of Extreme Risk Events, Soft Computing. He is author/ co-author of more than 120 published papers and has contributed to more than 10 books in these fields. Mircea Boscoianu has 7 participations (2 plenary speaker in 2008) in WSEAS Conferences with more than 20 papers. He was the Head of Saphire-FAI Programme (2006-2008) and is member of the Astronautical Commision of the Romanian Academy since 2005.
Mircea Boscoianu has an intersting experience in national projects/ programs (5 projects in CNCSIS 2003, CEEX 2005, SECURITY 2005, PN2 2007 as general manager and many projects as scientifical/ economical manager) and he contributed as a member in one FP5 project and two FP7 proposals (FP7-SEC2007-3.3.01, FP7-SEC2007-4.3.01).