Risk Analysis in Investment Appraisal

33 Pages Posted: 24 Apr 2001 Last revised: 23 Feb 2023

See all articles by Savvakis C. Savvides

Savvakis C. Savvides

Queen's University - John Deutsch Institute for the Study of Economic Policy

Date Written: 1994

Abstract

This paper was prepared for the purpose of presenting the methodology and uses of the Monte Carlo simulation technique as applied in the evaluation of investment projects to analyse and assess risk. The first part of the paper highlights the importance of risk analysis in investment appraisal. The second part presents the various stages in the application of the risk analysis process. The third part examines the interpretation of the results generated by a risk analysis application including investment decision criteria and various measures of risk based on the expected value concept. The final part draws some conclusions regarding the usefulness and limitations of risk analysis in investment appraisal.

Keywords: Risk Analysis, Monte Carlo simulation, Investment appraisal, Project analysis, Forecasting and simulation, Business administration

JEL Classification: D81, O22, G31, F47, M10

Suggested Citation

Savvides, Savvakis C., Risk Analysis in Investment Appraisal (1994). Project Appraisal Journal, Vol. 9, No. 1, March 1994 Republished in the book: Cost–Benefit Analysis (The International Library of Critical Writings in Economics series, 152) by Arnold C. Harberger (Editor) and Glenn P. Jenkins (Editor) by Edward Elgar Publishing (December 29, 2002) , Available at SSRN: https://ssrn.com/abstract=265905 or http://dx.doi.org/10.2139/ssrn.265905

Savvakis C. Savvides (Contact Author)

Queen's University - John Deutsch Institute for the Study of Economic Policy ( email )

Canada

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