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Journal of Finance and Accounting. 2013, 1(2), 54-61
DOI: 10.12691/jfa-1-2-3
Open AccessArticle

Technology-Based Startup Valuation Using Real Options with Edgeworth Expansion

Gastón Milanesi1, , Gabriela Pesce1 and Emilio El Alabi1

1Business Administration Department, Universidad Nacional del Sur, Bahía Blanca, Argentina

Pub. Date: October 16, 2013

Cite this paper:
Gastón Milanesi, Gabriela Pesce and Emilio El Alabi. Technology-Based Startup Valuation Using Real Options with Edgeworth Expansion. Journal of Finance and Accounting. 2013; 1(2):54-61. doi: 10.12691/jfa-1-2-3


There exists extreme difficulties while trying to valuate, using traditional valuation methods, startup firms which are dedicated to technological development. Among those methods, we could mention the balance sheet-based ones, the relative valuation ones, the cash flow discounting-based ones, and the goodwill-based ones. Those difficulties are the absence of comparable companies, the inexistence of historical data, the complexity to estimate volatility, and the number of intangible assets which give worth to the firm. This paper proposes to valuate this type of entrepreneurships using real options theory making adjustments that allow us to abandon the assumption of normal returns. Methodologically, we use real options theory adapted through Edgeworth expansion. It allows abandoning the probability of normal distribution assumption incorporating higher moments such us asymmetry and kurtosis. Obtained results let us show how the firm’s value and its strategic options are affected by stochastic higher moments’ behavior. These are often not considered because of assuming a normal behavior related to a random path of the underlying assets.

real option technology-based startup edgeworth expansion asymmetry kurtosis firm valuation

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