Paper: arXiv 2609.24181

Authors: Walter Kurz, Wojtek Stricker, Stefan Marx, Frank Reinhardt, Florian Kollberg

Abstract

Standard valuation methods, including discounted cash flow, the income approach standard IDW S 1 of the Institute of Public Auditors in Germany, and market multiples, compress milestone probabilities, continuation options, and risk shifts into opaque aggregate parameters; none provides a structured protocol for decomposing AI integration into auditable option-level assumptions. We propose an industry-agnostic taxonomy separating AI Integrators from AI Providers. AI Integrators are further classified by their Integration Depth Level, ranging from no integration to AI at the core of the product or process. A milestone-gated real-options overlay decomposes milestone state value into five components, and an Analytic Hierarchy Process-based Success Readiness Index derives per-option probabilities from structured pairwise comparisons for scenario analysis. Applied to an AI-native energy software-as-a-service firm, the framework yields a coherent valuation band traceable to identifiable option-level assumptions. Risk concentrates in later-stage continuation options, matching the structural prediction for AI Providers. The protocol applies across the firm lifecycle, including mergers and acquisitions due diligence. The case is a single-firm demonstration of protocol coherence, not empirical validation; multi-case testing against realised post-exit valuations is left to future research.

Complexity vs Empirical Score

  • Math Complexity: 7.0/10
  • Empirical Rigor: 4.0/10
  • Quadrant: Lab Rats — theoretically deep, empirically untested

Why this score: This paper proposes a novel real-options framework for AI valuation, demonstrating a strong theoretical foundation with advanced mathematical concepts like Analytic Hierarchy Process. While it presents a single-firm case study, it explicitly states this is for protocol coherence rather than empirical validation, thus limiting its empirical rigor. The novelty of applying real options and AHP to the specific problem of AI valuation uncertainty is high.

Research Flowchart

  flowchart TD
    A[Research Goal: Address AI Valuation Uncertainty Problem] --> B{Proposed Framework: Milestone-Based Real-Options};
    B --> C[Methodology: AI Integration Taxonomy & Milestone-Gated Real Options];
    C --> D{Data/Inputs: Firm-specific (e.g., AI-native energy SaaS firm) & Expert Judgements for AHP};
    D --> E[Computation: AHP for Option Probabilities & Real Options Valuation Model];
    E --> F[Key Findings: Coherent Valuation Band & Risk Concentration in Later Stages];
    F --> G[Outcome: Protocol Applicable Across Firm Lifecycle (e.g., M&A Due Diligence)];