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RESEARCH CENTER FOR INDUSTRIAL DEVELOPMENT PROBLEMS of NAS of Ukraine (KHARKIV, UKRAINE)

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Liburkina L. M.

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Integrating Monte Carlo Simulation and Fuzzy Logic into DCF Valuation: Framework for Incorporating Geopolitical Risk
Stashchuk D. M., Aleksin G. O.

Stashchuk, Dmytro M., and Aleksin, Glib O. (2026) “Integrating Monte Carlo Simulation and Fuzzy Logic into DCF Valuation: Framework for Incorporating Geopolitical Risk.” Business Inform 7:472–487.
https://doi.org/10.32983/2222-4459-2026-7-472-487

Section: Finance, Money Circulation and Credit

Article is written in English
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UDC 330.131.7:330.322.5

Abstract:
This study aims to develop and empirically validate a corporate valuation framework for conflict-affected environments, where deterministic Discounted Cash Flow (DCF) models do not adequately represent stochastic variability or qualitative ambiguity. The research examines how DCF valuation, Monte Carlo simulation, and fuzzy logic can be combined, how geopolitical conditions can be translated into a quantitative risk-premium adjustment, and how this integration changes the enterprise valuation and downside-risk profile of Ukrainian Railways. The proposed model employs a multi-layer methodology. A deterministic five-year DCF establishes the benchmark enterprise value; a rule-based fuzzy inference system converts expert assessments of territorial control stability, infrastructure damage, economic recovery, and regulatory and political stability into an additive geopolitical risk premium; and a 10.000-iteration Monte Carlo simulation models uncertainty in the weighted average cost of capital and terminal growth rate. The framework combines possibilistic treatment of qualitative ambiguity with probabilistic analysis of financial variability. Applied to Ukrainian Railways, the fuzzy system yields an 8.84 percentage-point geopolitical risk premium. The uncertainty-adjusted simulation yields a mean enterprise value of USD 947 million and a 95% downside floor of USD 601 million, compared with the deterministic estimate of USD 1.551 million. The results identify WACC as the principal channel through which geopolitical and macro-financial uncertainty reduces enterprise value. The framework offers investors, analysts, creditors, managers, and policymakers a transparent basis for valuation, restructuring, stress testing, and evaluating policies that improve institutional stability and infrastructure resilience. Its relevance lies in making the economic cost of geopolitical instability visible for a strategic provider of transport, evacuation, humanitarian logistics, and postwar integration. The study’s originality is a coherent, replicable linkage of fuzzy geopolitical assessment, a quantitative discount-rate adjustment, and stochastic DCF outcomes. Generalizability is limited by single-case, expert-based rules and fixed cash flows; future research should calibrate fuzzy parameters empirically, allow geopolitical conditions and cash flows to evolve dynamically, and validate the method across sectors and countries.

Keywords: discounted cash flow (DCF); Monte Carlo simulation; fuzzy logic; valuation; geopolitical risk.

Fig.: 1. Tabl.: 11. Formulae: 9. Bibl.: 23.

Stashchuk Dmytro M. – Candidate of Sciences (Economics), Associate Professor, Department of Corporate Finance and Controlling, Kyiv National Economic University named after Vadym Hetman (54/1 Beresteiskyi Ave., Kyiv, 03057, Ukraine)
Email: [email protected]
Aleksin Glib O. – Candidate of Sciences (Economics), Associate Professor, Department of Corporate Finance and Controlling, Kyiv National Economic University named after Vadym Hetman (54/1 Beresteiskyi Ave., Kyiv, 03057, Ukraine)
Email: [email protected]

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