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Journal articles on the topic 'Real Option'

Author: Grafiati

Published: 4 June 2021

Last updated: 21 December 2024

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1

Munoz Cabanes, Alberto, Alfonso Herrero de Egana, and Arturo Romero. "Real option analysis. The viability of real estate projects." Investment Management and Financial Innovations 17, no. 4 (December 8, 2020): 271–84. http://dx.doi.org/10.21511/imfi.17(4).2020.24.

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Traditional methods used for real estate project valuation, such as the static Net Present Value, have some limitations, as these methods do not consider the possibility of a change in the initial conditions of the project or during its development. On the other hand, the real options approach allows for flexibility in evaluating a real estate project, improving the decision-making process as it helps identify the optimal strategy and timing for the construction phases. The paper deals with evaluating an actual real estate project in La Rioja (Spain) using different options to estimate its final Net Present Value. The results show that the real estate project would be profitable under several scenarios, although the valuations can vary significantly among the different types of options. This is because some options add more value to the project than others, depending on their cost and the uncertainty they eliminate. In contrast, the results obtained using the traditional static method would have led a real estate developer to discard the project completely, as its Net Present Value would have been negative. This confirms that the introduction of flexibility in real estate developments creates additional value by allowing developers and investors to dynamically react to changes in the market, thus making better investment decisions and finding real estate investment opportunities that otherwise would not be considered at all.

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2

Krüger, Niclas A. "To kill a real option – Incomplete contracts, real options and PPP." Transportation Research Part A: Policy and Practice 46, no. 8 (October 2012): 1359–71. http://dx.doi.org/10.1016/j.tra.2012.04.009.

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3

Mintah, Kwabena, David Higgins, Judith Callanan, and Ron Wakefield. "Staging option application to residential development: real options approach." International Journal of Housing Markets and Analysis 11, no. 1 (February 5, 2018): 101–16. http://dx.doi.org/10.1108/ijhma-02-2017-0022.

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Purpose Real option valuation is capable of accounting for uncertainties in residential development projects but still lacks practical adoption due to limited evidence to support application of the theory in practice. The purpose of this paper is to use option valuation to value staging option embedded in residential projects and compare with results from DCF to determine which of the two methods delivers superior results. Design/methodology/approach The fuzzy payoff method (FPOM), a real options model that uses scenario planning approach to generate a range of figures, from which a single-numerical value is computed for decision-making. Findings The results showed that the use of a range of figures was able to represent uncertainties to a higher degree of accuracy than the static DCF. As a result, the FPOM was able to capture about 3 per cent of the value of the project that was missed by the DCF. The staging option offers an opportunity to abandon unprofitable phases of a project, thereby limiting downside losses. Thus, real option models are practically applicable to cases in property sector. Practical implications Residential property developers must consider flexibility in financial feasibility evaluation of development because of the embedded value in uncertain property projects. It is important to account for optionality in financial evaluation of property projects for value maximisation. Originality/value The FPOM has been used for the first time to evaluate a horizontal phasing of a residential development project.

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Li, Songsong, Yinglong Zhang, and Xuefeng Wang. "The Sunk Cost and the Real Option Pricing Model." Complexity 2021 (September 30, 2021): 1–12. http://dx.doi.org/10.1155/2021/3626000.

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Although the academic literature on real options has grown enormously over the past three decades, hitherto an accurate real option pricing model has not been developed for investment decision analyses. In this paper, we propose a real option pricing model based on sunk cost characteristics, which can estimate the value of real options more accurately. First, we explore the distinctive features that distinguish real options from financial options. The study shows that the distinguishing feature of the real options is the sunk cost, which does not exist in the financial options. Based on the sunk cost characteristic of real options, we find that the exercise conditions of real and financial options are different. Second, we introduce the sunk cost into the intrinsic value function of real options and establish a new real option pricing model. Finally, this paper also discusses the properties of the intrinsic value function and pricing model of real options. We find that the application of the Black–Scholes option pricing model will overestimate the value of real options.

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Décaire, Paul H., Erik P. Gilje, and Jérôme P. Taillard. "Real Option Exercise: Empirical Evidence." Review of Financial Studies 33, no. 7 (August 28, 2019): 3250–306. http://dx.doi.org/10.1093/rfs/hhz092.

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Abstract We study when and why firms exercise real options. Using detailed project-level investment data, we find that the likelihood that a firm exercises a real option is strongly related to peer exercise behavior. Peer exercise decisions are as important in explaining exercise behavior as variables commonly associated with standard real option theories, such as volatility. We identify peer effects using localized exogenous variation in peer project exercise decisions and find evidence consistent with information externalities being important for exercise behavior. (JEL G30, G31, G32)

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6

Čirjevskis, Andrejs. "Exploring the Usefulness of Real Options Theory for Foreign Affiliate Divestments: Real Abandonment Options’ Applications." Journal of Risk and Financial Management 17, no. 10 (September 29, 2024): 438. http://dx.doi.org/10.3390/jrfm17100438.

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Scholars propose that future research on real options theory should shift attention away from option buying during the first investment stage and toward option execution after investment. Researchers maintain that it would be interesting to explore the circumstances under which investors decide to withdraw their investments, thereby exercising the option to abandon their investments. The present research seeks to fill the gap in the literature and investigate the applicability of real options theory when an organization enhances sustainability policies while focusing on disciplined capital allocation through exit strategies. With case study data on Natura &Co’s divestment strategy for the Body Shop in November 2023, a real options analysis revealed the method’s practical advantages and disadvantages. This paper investigates real options theory in the context of the divestments of foreign affiliates, providing unique viewpoints and enhancing the theory beyond previous knowledge while also increasing our understanding of the divestiture phenomenon. This study concludes with a review of this paper’s theoretical contributions to real options theory, the managerial and practical/social implications of real options applications in general, and the valuation methods of abandonment options in particular, shedding light on the potential of future research.

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7

Adetunji, Olubanjo Michael, and Akintola Amos Owolabi. "Valuation of Interacting Time-to-Build and Growth Real Options in Infrastructure Investments." International Journal of Economics and Finance 8, no. 12 (November 17, 2016): 202. http://dx.doi.org/10.5539/ijef.v8n12p202.

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This paper argues that real options approach presents a better valuation approach for valuing infrastructure investments when compared to traditional discounted cash flow approach. Managerial flexibilities, in various forms of real options, can be incorporated into infrastructure projects to expand the projects’ values. The paper identifies two key types of real options present in infrastructure investments as time-to-build and growth options and extends an earlier developed closed-form option valuation formula to value these options. The paper uses a numerical case of investment in railroad infrastructure project and shows that both types of real options, when embedded in infrastructure projects, add values to the projects. It however shows that the value of growth option is far more than the value of time-to-build option as growth options create opportunities for follow-on investments. It also shows that when the two options are present in an infrastructure investment, the time-to-build real option interacts with the growth option to reduce the latter’s value.

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8

Witjaksono, Armanto. "Real Option Analysis (ROA)." Winners 4, no. 1 (March 31, 2003): 54. http://dx.doi.org/10.21512/tw.v4i1.3804.

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9

Brandão, Luiz E., and James S. Dyer. "Decision Analysis and Real Options: A Discrete Time Approach to Real Option Valuation." Annals of Operations Research 135, no. 1 (March 2005): 21–39. http://dx.doi.org/10.1007/s10479-005-6233-9.

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10

Baev, Leonid, and Olga Egorova. "DEVELOPMENT OF THE THEORY OF REAL OPTIONS AS A TOOL FOR ADAPTIVE MANAGEMENT OF INVESTMENT PROJECT EFFICIENCY." Bulletin of the South Ural State University series "Economics and Management" 18, no. 2 (2024): 75–90. http://dx.doi.org/10.14529/em240206.

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The article is devoted to the issues of correct assessment and management of optional invest-ment projects in real assets. The research methodology is based on the principles of rational multicriterial deci-sion-making in conditions of uncertainty, which determines not only risks, but also opportunities to improve the efficiency of projects, through the a priori introduction of options into the projects, allowing the use of probable opportunities. The study analyzes various approaches and methods of assessing the efficiency of investment projects and the value of real options. It shows that there is no possibility in principle to directly use the meth-odology of financial options valuation for the valuation of real options. The binary decision tree approach and ROV-method (real option valuation – method) are used as the basis for the development of the author's method of real option valuation. Despite a rather high flexibility and adaptability of this method, the key task of its practical use is to estimate the probabilities of optimistic and pessimistic trajectories of binary option branch-ing, which, due to the fundamental novelty of most investment projects and the lack of reliable retrospective in-formation, is realizable only with the involvement of relevant and verifiable expert methods. The authors con-sider the proposed method as a modified real option valuation method (MROV – modified real option valua-tion – method). The practical significance of the obtained results lies in improving the correctness of real option valuations and option projects and making effective option management decisions in real investment projects.

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Cong, Lin William. "Timing of Auctions of Real Options." Management Science 66, no. 9 (September 2020): 3956–76. http://dx.doi.org/10.1287/mnsc.2019.3374.

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This paper endogenizes auction timing and initiation in auctions of real options. Because bidders have information rent, a seller faces a “virtual strike price” higher than the actual exercise cost. The seller inefficiently delays the auction to encourage bidder participation and uses the irreversible nature of time to gain partial control over option exercises. The seller’s private benefit at option exercise may restore efficient auction timing, but option exercises are always inefficiently late. When the seller lacks commitment to auction timing, bidders always initiate in equilibrium, resulting in earlier option exercise and higher welfare than auctions proscribing bidder initiation. Overall, auction timing modifies the distribution of the bidder valuations and has important implications for bidding strategies, auction design, and real outcomes. This paper was accepted by Gustavo Manso, finance.

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Klepáč, Václav, Petr Kříž, and David Hampel. "Real options analysis in the engineering company practice." Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis 61, no. 7 (2013): 2303–9. http://dx.doi.org/10.11118/actaun201361072303.

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In this paper, we deal with the real options analysis of selected investment projects. This approach is supplemented and compared to calculations of the net present value (NPV). Two research problems are analyzed: acquisition of the simulation software for the foundry industry in the sense of the expansive options and options on leaving the project in the case of acquisition of the spectrometer. For the option valuation, there were used analytical and numerical methods like the Black-Scholes model, binomial model and Monte Carlo simulations. In the case of binomial pricing model we used modification describing the behavior of the project’s cash-flow (CF) due to capacity of the company, path-dependent addiction and embedded option barrier. To extend the application of the real options analysis, we propose procedures for sensitivity analysis and option pricing based on Monte Carlo simulations for particular case of stochastic volatility.

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13

Rakic, Biljana, and Tamara Radjenovic. "Real options methodology in public-private partnership projects valuation." Ekonomski anali 59, no. 200 (2014): 91–113. http://dx.doi.org/10.2298/eka1400091r.

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PPP offers numerous benefits to both public and private partners in delivery of infrastructure projects. However this partnership also involves great risks which have to be adequately managed and mitigated. Private partners are especially sensitive to revenue risk, since they are mostly interested in the financial viability of the project. Thus they often expect public partners to provide some kind of risk-sharing mechanism in the form of Minimum Revenue Guarantees or abandonment options. The objective of this paper is to investigate whether the real option of abandoning the project increases its value. Therefore the binominal option pricing model and risk-neutral probability approach have been implemented to price the European and American abandonment options for the Build-Operate-Transfer (BOT) toll road investment. The obtained results suggest that the project value with the American abandonment option is greater than with the European abandonment option, hence implying that American options offer greater flexibility and are more valuable for private partners.

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Morreale, Azzurra, Luigi Mittone, Thi-Thanh-Tam Vu, and Mikael Collan. "To Wait or Not to Wait? Use of the Flexibility to Postpone Investment Decisions in Theory and in Practice." Sustainability 12, no. 8 (April 23, 2020): 3451. http://dx.doi.org/10.3390/su12083451.

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Business sustainability and real options are closely connected, as real options are managerial flexibility that allows organizations to adapt to changes in their environment, thus making the organization more robust and economically sustainable. Studies in real options theory abound, yet there is still a lack of evidence on whether people make decisions consistently with the predictions made by real options models. We run a laboratory experiment to study the role of option value and the laboratory time required to resolve uncertainty in individuals’ decision to price and adopt an option to wait. Specifically, we compare decision makers’ choices in two investment scenarios: One with a short time to maturity (implying a low option value), and another with a longer time to maturity (implying a high option value). In the lab, both scenarios are implemented with the waiting time of twenty and sixty minutes. Our results show that decision makers deviate from the theoretical predictions, recognizing the benefit of waiting, when the value of the option is higher, or when the waiting time is shorter. Our study does not only bring more insights into real options adoption at the individual level, but also emphasizes the great potential of behavioral and experimental approach to bridge the gap between theory and practice in the real options literature.

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Collan, Mikael, Robert Fullér, and József Mezei. "A Fuzzy Pay-Off Method for Real Option Valuation." Journal of Applied Mathematics and Decision Sciences 2009 (June 17, 2009): 1–14. http://dx.doi.org/10.1155/2009/238196.

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Real option analysis offers interesting insights on the value of assets and on the profitability of investments, which has made real options a growing field of academic research and practical application. Real option valuation is, however, often found to be difficult to understand and to implement due to the quite complex mathematics involved. Recent advances in modeling and analysis methods have made real option valuation easier to understand and to implement. This paper presents a new method (fuzzy pay-off method) for real option valuation using fuzzy numbers that is based on findings from earlier real option valuation methods and from fuzzy real option valuation. The method is intuitive to understand and far less complicated than any previous real option valuation model to date. The paper also presents the use of number of different types of fuzzy numbers with the method and an application of the new method in an industry setting.

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16

Del Viva, Luca, Eero Kasanen, and Lenos Trigeorgis. "Real Options, Idiosyncratic Skewness, and Diversification." Journal of Financial and Quantitative Analysis 52, no. 1 (February 2017): 215–41. http://dx.doi.org/10.1017/s0022109016000703.

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We show how firm-level real options lead to idiosyncratic skewness in stock returns. We then document empirically that growth option variables are positive and significant determinants of idiosyncratic skewness. The real option impact on skewness is more significant in firms with lottery-type features, small size, high volatility, distressed, low return on assets, and low book-to-market ratio. We also find that expectation on idiosyncratic skewness is associated with lower Sharpe ratios. This suggests investors are willing to sacrifice mean-variance portfolio efficiency for greater skewness deriving from real options. Furthermore, financial flexibility has a positive incremental effect, enhancing the beneficial role of asset flexibility on idiosyncratic skewness.

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17

Chu, Yongqiang, and Tien Sing. "International Real Estate Review." International Real Estate Review 24, no. 1 (March 31, 2021): 1–17. http://dx.doi.org/10.53383/100314.

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Developers make decisions around timing and intensity simultaneously when exercising a development option. Built on the early real options models, we allow the demand shock and the cost functions to be dependent on the intensity of real estate development. Based on a set of input parameters, the numerical results show that demand uncertainty delays development activities, and the rental elasticity to density change has an inverse effect on the deferment option values. In a market where the intensity impact on rental income is small, development activities are likely to be curtailed when market volatility increases. More empirical tests could be conducted on whether more smaller-scale projects are triggered in down markets relative to up markets.

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18

Wang, Chao, Wei Liang, and Shou Qing Wang. "Real Option in Urban Rapid Rail Transit PPP Project." Applied Mechanics and Materials 505-506 (January 2014): 437–42. http://dx.doi.org/10.4028/www.scientific.net/amm.505-506.437.

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To address a real issue in Beijing Urban Rail PPP project, an Excel model is built to solve the decision making problem of car park scale using real option theory. The model calculates the expected NPV of different options of building scale with real option embedded, avoiding the trouble of option pricing. The results show that real option can significantly optimize the decision making process of PPP projects. Especially when dealing with the problems raised by uncertainty in the process of negotiation, decision making and execution of a PPP project, real option can be more useful as it not only offers a way to improve the rationality of a decision, but also helps both of the private and the public sectors to reach an agreement.

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Wang, Qian, Keith W. Hipel, and D. Marc Kilgour. "Fuzzy Real Options in Brownfield Redevelopment Evaluation." Journal of Applied Mathematics and Decision Sciences 2009 (June 24, 2009): 1–16. http://dx.doi.org/10.1155/2009/817137.

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Real options modeling, which extends the ability of option pricing models to evaluate real assets, can be used to evaluate risky projects because of its capacity to handle uncertainties. This research utilizes possibility theory to represent private risks of a project, which are not reflected in the market and hence are not fully evaluated by standard option pricing models. Using a transformation method, these private risks can be represented as fuzzy variables and then priced with a fuzzy real options model. This principle is demonstrated by valuing a brownfield redevelopment project using a prototype decision support system based on fuzzy real options. Because they generalize the original model and enable it to deal with additional uncertainties, fuzzy real options are entirely suitable for the evaluation of such projects.

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Fernandes, Rui, Joaquim Gouveia, and Carlos Pinho. "Overstock – A Real Option Approach." Journal of Operations and Supply Chain Management 3, no. 2 (December 22, 2010): 98. http://dx.doi.org/10.12660/joscmv3n2p98-107.

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In the last decades, firms have been facing a new challenge, considering the increasing uncertainty of the markets and the pressure to achieve better levels of performance, within the stake-holders expectations. Three main problems have been emerging in dealing with management performance: the increasing pressure to reduce working capital, the growing variety of products and the fulfillment of a demanding service level. Most of the popular indicators have been developed based on a controlled environment. A new indicator is now proposed, based on the uncertainty of the demand, the flexibility of the supply chains, the evolution of the products lifecycle and the fulfillment of a required service level. The model to support the indicator will be developed within the real options approach. <br />

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21

Chow, Joseph Y. J., and Amelia C. Regan. "Network-based real option models." Transportation Research Part B: Methodological 45, no. 4 (May 2011): 682–95. http://dx.doi.org/10.1016/j.trb.2010.11.005.

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22

Mardones, JoséLuis. "Option valuation of real assets." Resources Policy 19, no. 1 (March 1993): 51–65. http://dx.doi.org/10.1016/0301-4207(93)90052-o.

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23

Azevedo, Alcino, and Dean Paxson. "Developing real option game models." European Journal of Operational Research 237, no. 3 (September 2014): 909–20. http://dx.doi.org/10.1016/j.ejor.2014.02.002.

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24

Wonder, Nicholas. "Contracting on real option payoffs." Journal of Economics and Business 58, no. 1 (January 2006): 20–35. http://dx.doi.org/10.1016/j.jeconbus.2005.06.004.

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25

Doval, Hernán C. "Is Preventing Heart Failure a Real Option? Is Preventing Heart Failure a Real Option?" Revista Argentina de Cardiologia 87, no. 6 (June 2019): 489–93. http://dx.doi.org/10.7775/rac.v87.i6.16645.

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Ternova, Yaroslavna O. "ANALYSIS OF THE SUCCESS OF ORGANIZATIONAL CHANGES BASED ON THE RESULTS OF REAL OPTIONS THEORY." EKONOMIKA I UPRAVLENIE: PROBLEMY, RESHENIYA 11/11, no. 152 (2024): 21–30. https://doi.org/10.36871/ek.up.p.r.2024.11.11.003.

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The purpose of the work is to substantiate the application of the theory of real options to assess the success of organizational changes. An analogy is drawn between financial and real options, where: a) a project acts as a subject asset within the framework of organizational changes; b) an investment in a real option act as an option premium; c) as a strike– the standard for the target level of return on the level of net return on invested capital (ROI). Since the expected results from the use of the option are vague, there is a risk that the expected effect of the implementation of the option will be lower than the calculated level. This risk can be estimated using the results of fuzzy set theory and soft computing. If project options form a portfolio, then it is appropriate to optimize it according to Pareto in the coordinates “risk – average ROI”. A computational example is considered, in which an approach to evaluating design real options using the results of fuzzy set theory and soft computing is demonstrated. Conclusion. The analysis of the impact of real options on projects should be carried out in a fuzzy paradigm, using modern methods of optimizing project and option portfolios of the appropriate orientation.

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Vimpari, Jussi, and Seppo Junnila. "Valuing green building certificates as real options." Journal of European Real Estate Research 7, no. 2 (July 29, 2014): 181–98. http://dx.doi.org/10.1108/jerer-06-2013-0012.

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Purpose – The purpose of this study is first to evaluate whether real options analysis (ROA) is suitable for valuing green building certificates, and second to calculate the real option value of a green certificate in a typical office building setting. Green buildings are demonstrated as one of the most profitable climate mitigation actions. However, no consensus exists among industry professionals about how green buildings and specifically green building certificates should be valued. Design/methodology/approach – The research design of the study involves a theoretical part and an empirical part. In the theoretical part, option characteristics of green building certificates are identified and a contemporary real option valuation method is proposed for application. In the empirical part, the application is demonstrated in an embedded multiple case study design. Two different building cases (with and without green certificate) with eight independent cash flow valuations by eight industry professionals are used as data set for eight valuation case studies and analyses. Additionally, cross-case analysis is executed for strengthening the analysis. Findings – The paper finds that green certificates have several characteristics similar to real options and supports the idea of using ROA in valuing a green certificate. The paper also explains how option pricing theory and discounted cash flow (DCF) method deal with uncertainty and what shortcomings of DCF could be overcome by ROA. The results show that a mean real option value of 985,000 (or 8.8 per cent premium to the mean property value) was found for a Leadership in Energy and Environmental Design Platinum certificate in the Finnish property market. The main finding of the paper suggests that the contemporary real option valuation methods are appropriate to assess the monetary value and the uncertainty of a green building certificate. Originality/value – This is the first study to argue that option-pricing theory can be used for valuing green building certificates. The identification of the option characteristics of green building certificates and demonstration of the ROA in an empirical case makes questions whether the current mainstream investment analysis approaches are the most suitable methods for valuing green building certificates.

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Гераськина and A. Geraskina. "The Method of Real Options in the Evaluation of Strategic and Investment Decisions." Economics 5, no. 3 (June 15, 2017): 41–45. http://dx.doi.org/10.12737/article_59393a6b428b54.77069649.

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The method of real options is one of the new approaches to estimate investment projects’ cost and it is an important addition to discounted cash flow method. Real option significantly increases the efficiency of the project due to the possibility of decision-making during its implementation. This aspect is especially important in unstable environmental conditions. The main differences between the financial and real options are presented. The differences of valuation of investment projects by the real options method and net present value are examined. The article presents the types of real options, as well as the methods of calculating the option price.

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Xue, Yong Gang, and Ming Li Zhang. "Valuing Research Investment Projects Based on Discrete Time Model: A Real Options Approach." Advanced Materials Research 926-930 (May 2014): 4073–76. http://dx.doi.org/10.4028/www.scientific.net/amr.926-930.4073.

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The methodology is proposed to value a project based on real options model firstly. Then the BOPM is used to value a project and the empirical results are compared with the results which are based on NPV approach. The results favor the application of the real option theory and show that the option value have important role on investment decision. The results show that the real option approach is more rational than the traditional NPV approach in valuing project because the uncertainty is considered in real option approach. The uncertainty with respect to project return has a substantial effect on investment decision, which is only explained by the option theory.

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Adner, Ron, and Daniel A. Levinthal. "What IsNotA Real Option: Considering Boundaries for the Application of Real Options to Business Strategy." Academy of Management Review 29, no. 1 (January 2004): 74–85. http://dx.doi.org/10.5465/amr.2004.11851715.

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Cottrell, Tom, and Gordon Sick. "Real Options and Follower Strategies: The loss of real option value to first-mover advantage." Engineering Economist 47, no. 3 (January 2002): 232–63. http://dx.doi.org/10.1080/00137910208965035.

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LIU, YU-HONG. "VALUATION OF COMPOUND OPTION WHEN THE UNDERLYING ASSET IS NON-TRADABLE." International Journal of Theoretical and Applied Finance 13, no. 03 (May 2010): 441–58. http://dx.doi.org/10.1142/s021902491000584x.

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After Geske (1979), compound options — options on options — have been employed in many fields in which real options are applied. The formula for a compound option is convenient to use in real project investment, but it has one drawback — the assets that underlie the compound options are usually non-tradable. This article addresses this issue and proposes two new compound option pricing formulae to overcome this drawback.

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Krishnaswamy, C. R., and Rathin S. Rathinasamy. "Offshore Outsourcing Contracts: Real Options Analysis Using Trinomial Option Pricing Model." GLOBAL BUSINESS & FINANCE REVIEW 20, no. 1 (June 30, 2015): 15–24. http://dx.doi.org/10.17549/gbfr.2015.20.1.15.

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Grenadier, Steven R. "OPTION EXERCISE GAMES: THE INTERSECTION OF REAL OPTIONS AND GAME THEORY." Journal of Applied Corporate Finance 13, no. 2 (June 2000): 99–107. http://dx.doi.org/10.1111/j.1745-6622.2000.tb00057.x.

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35

Foo Sing, Tien. "A Real Option Approach to Pricing Embedded Options in Retail Leases." Pacific Rim Property Research Journal 18, no. 3 (January 2012): 197–211. http://dx.doi.org/10.1080/14445921.2012.11104359.

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36

Scherpereel, Christopher M. "The option-creating institution: a real options perspective on economic organization." Strategic Management Journal 29, no. 5 (2008): 455–70. http://dx.doi.org/10.1002/smj.671.

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Wu, Yiping, Jianjun Wang, Qing Wang, Qian Li, Haowu Li, Ningning Zhang, and Qingchao Cao. "Portfolio Real Option Based on Trigeminal Tree Model in Sustainable Utilization of Exploration Asset." Wireless Communications and Mobile Computing 2022 (April 27, 2022): 1–11. http://dx.doi.org/10.1155/2022/4662460.

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Uncertainty of crude oil market causes the value of oil and gas exploration assets to fluctuate upward, remain unchanged, and fluctuate downward. So exploration project investment is usually chartered by multistages. This brings many challenges to investment decisions regarding the sustainable utilization of exploration assets. To avoid the investment risk of exploration projects, a portfolio option method based on the trigeminal tree model was proposed. By analysing the real options involved in oil and gas exploration assets, the investment process is divided into European options and American options. The pricing model of portfolio options is constructed by the trigeminal tree method, and sequential compound diagram and compound option diagram are built. Volatility is predicted based on the GARCH model, and then, the trinomial tree of the underlying asset value, evolution chart, sequential compound option chart, and portfolio option chart is established, respectively. Finally, the project option value is calculated. The application shows that the ROV of oil and gas exploration project of company A is 1.39 million US$ (USMM$), and the project value is 279.87 USMM$. Compared with the binary tree model, the model is superior to the traditional option pricing method in the application effect, which provides a scientific basis for investment decision-making.

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Cioaca, Catalin, and Mircea Boşcoianu. "Applications of Real Options Analysis in Aviation Security Investments." Applied Mechanics and Materials 436 (October 2013): 32–39. http://dx.doi.org/10.4028/www.scientific.net/amm.436.32.

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The interest upon real options method amplified in the last decade due to the higher level of uncertainty faced by some organizations (from the private and also the public sector) when the decision to make a strategic investment is required (in a competitive environment) or it is a external requirement of the organizational environment (ensuring security standards). The process of assessment of the option is developed by evaluating the potential benefits associated with the three possible scenarios under expansion, contract and wait options. The value of the real option is the result of the fuzzy mean. The possibility of obtaining values for each option permits the management to compare and choose the best decisions for efficient investment. The evaluation and investment planning aims to make better use of funds by reducing operating costs and uncertainty for potential gains and substantiate predictions about the performance of the strategy.

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Šoltés, Michal, and Monika Harčariková. "Gold price risk management through Nova 3 option strategy created by barrier options." Investment Management and Financial Innovations 13, no. 1 (March 4, 2016): 49–0. http://dx.doi.org/10.21511/imfi.13(1).2016.04.

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The paper is focused on selected aspects of the hedging using of Nova 3 option strategy created by barrier options, which are appropriate tools widely used for risk management of high risk underlying assets. Financial risk management using option strategies is an effective solution for limiting the loss from underlying asset’s price development. The Nova 3 option strategy is suitable for hedging against increase in price of the underlying asset in case of its purchase in future. In our approach, European up and knock-in call options together with standard put and barrier put options are used for investigation of hedging strategies in increasing markets. Theoretical models of suitable hedged profit functions in analytical expressions are analyzed also from their benefits and risks point of view. Created combinations of these hedging variants have to meet the requirements of zero-cost option strategy. Based on the own theoretical results, the hedged profit portfolio is applied to SPDR Gold Shares, where due to the lack of data on real barrier option premiums, these were calculated according to Haug model. Designed secured variants through Nova 3 option strategy were analyzed and compared to each other with the recommendations of the best possibilities for investors

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Da, Wu, and Wan Li Xing. "Study on the Application of Real Options in Coal Resources Investment." Advanced Materials Research 978 (June 2014): 265–71. http://dx.doi.org/10.4028/www.scientific.net/amr.978.265.

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This paper uses the real options approach to conduct research on the coal resources development investment decision by literature studies, the combination of theoretical research and practical research. It has carried on the systematic overall retrospect to the domestic and international research results about real option. It introduces and analyzes the real option theory on the basis of analyzing and appraising to the traditional investment methods systematically in detail. This paper has studied the value of the investment project again with the real option theory. It sums up the application area, step and analyzing frame of real option theory, and analyzes the insufficiency of the traditional investment decision on the basis of comparing with traditional coal resource investment decision, and proposes some improvement suggestions.

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Kulcsár, Edina. "Managing risk using real options in company’s valuation." Acta Agraria Debreceniensis, no. 58 (April 8, 2014): 125–32. http://dx.doi.org/10.34101/actaagrar/58/1984.

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The valuation of company is very important because provides information about the current value/situation of company, and through this, provide the opportunity of choosing the best company’s growth alternatives. The future strategic decisions are characterized by lack of knowledge, information, so all measures of company’s growth are closely linked with uncertainty and risk. The company’s valuation process is also related with uncertainty and risk. The risk may result both from the assessed assets and the technique used. In literature, we could find three approaches for risk management: capital budgeting based method, methods based on portfolio analysis and real options approach of risk management. Among them, the real options based methods is the most revolutionary approach for risk management. The advantages of the method, consists in the fact, that the process of establishing strategic decisions integrates the possibility of reversibility, delay and rejections, which isn’t it possible at two previous methods. The method also takes into account the total risk of company, so both the company-specific and systematic risk. In this study, I have used one of the best-known real option based method, the Black-Scholes model, for determining the option’s value. Determination of option value is based on the data of enterprise, which was tested Monte Carlo simulation. One of the basic assumptions of the Black-Scholes model is that the value of option is influenced by several factors. The sensitivity of option’s value could be carried out with so-called “Greeks”.. In the study the sensitivity analysis, was carried out with indicators Delta (Δ), Gamma (Γ) and Vega (ν). The real options based risk management determinations were performed in the R-statistics software system, and the used modules are 'fPortofio' and 'mc2d'. By using of real options method, I have calculated the average value of company capital equal with 38.79 million. By using simulation was carried out 1000 runs. The results of this show a relatively low standard deviation, small interquartile range and normal distribution. In the calculation of indicator Delta, could be concluded the value of company moves in 0.831 proportion to the price of options, the standard deviations of index is low, so the real option based method could be used with success in company’s value estimation. The Gamma index shows the enterprise value is sensitive just for large changes. The result of Vega reflects the value of option, so the company’s value volatility, which is small in this case, but this means a volatility of value. In summary, we can conclude that the call options pricing model, well suited for the determination of company’s value.

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Mintah, Kwabena, David Higgins, and Judith Callanan. "A real option approach for the valuation of switching output flexibility in residential property investment." Journal of Financial Management of Property and Construction 23, no. 2 (August 6, 2018): 133–51. http://dx.doi.org/10.1108/jfmpc-05-2017-0017.

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Purpose Uncertainties in residential property investment performance require that real estate assets are designed in a flexible manner to respond to impacts of market dynamics. Though estimating the cost of flexibility is straightforward, assessing the economic value of flexibility is not. The purpose of this study is to explore the potential practical application of real option analysis to determine the economic value of a switching output flexibility embedded in a residential property investment in Australia. The study involves the exploration of an optimal strategy for investment in a residential development through real option analysis and valuation of a mixed use investment. Design/methodology/approach The real option valuation model developed by McDonald and Siegel (1986) is adopted for the evaluation because the switching output flexibility is likened to a perpetual American call option with dividend payout. Findings Through real option analysis, the economic value of switching output flexibility of the mixed use building was determined to be higher than the initial upfront costs. Moreover, a payoff of about $4million was determined to be the value of the switching output flexibility, therefore justifying upfront investments in flexibility as an uncertainty and risk management tool. Practical implications This application is an important demonstration of the practical use of options pricing techniques (real options analysis) and delivers further evidence needed to support the adoption of real option valuation in practice. Flexibility can also enhance risks and uncertainty management in residential property investment better than the adjustment of discount rates. Originality/value There is limited evidence on the use of real options techniques for the valuation of switching output flexibility in practice, and this comes as an original application; both the case study and data are all initial applications of switching flexibility in the Australian property market.

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Banerjee, Ashok. "Real Option Valuation of a Pharmaceutical Company." Vikalpa: The Journal for Decision Makers 28, no. 2 (April 2003): 61–73. http://dx.doi.org/10.1177/0256090920030205.

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Valuing a research-driven firm is a challenging task. The static discounted cash flow (DCF) model fails to capture the value of R&D options. Pharmaceutical companies are, by their very nature, dependent on research products. These companies face an uncertain business environment. Roughly, one out of 10,000 explored chemicals becomes a prescription drug and only 30 per cent of drugs succeed in recovering their costs. Since the future of current R&D investments is uncertain, the traditional cash flow method may return a negative value of the future growth plan. Various studies have shown that the concept of real options can be applied to capture the value of R&D investments. Options give their owner the right (and not the obligation) to buy or sell assets at a pre-determined price (called the exercise or strike price) on or before an agreed expiry date. The underlying asset for which the option contract is made can be financial instruments (e.g., shares) or investment projects (e.g., expansion or acquisition or R&D investments). If the underlying assets are shares, such options are called ‘stock options.’ On the other hand, options on investment projects are known as ‘real options. This study shows how we can value a pharmaceutical company with potential research products in the pipeline. The traditional DCF method could hardly explain around 39 per cent of the market capitalization of the company. This is because the market price has already factored in the growth options — the possible growth from drug discovery initiatives, growth from joint venture initiatives, etc. The cash flow model fails to capture these future values. Real options model to value research products has significantly improved the valuation. We show that the underlying value of R&D investments is best recognized in option pricing model. With Indian patent laws following the footsteps of the WTO prescriptions (from 2005), Indian pharmaceutical companies cannot avoid making significant investments in R&D. The study reveals that unless the compounds under research have potential to be breakthrough drugs, it may be difficult to recover R&D investments. Therefore, attaining a reasonable global market share is critical for Indian pharmaceutical companies to exercise options. The Indian market for any high-investment research drug is comparatively small. Given the huge R&D costs of new drug discovery, it is impossible for a domestic manufacturer to recover the R&D costs from domestic sales. Capturing export market is vital to the success of any new drug. So far, not a single new drug has been fully developed in India (right from discovery to successful completion of all trials). Indian companies have acquired generic products, discovered alternative process of manufacturing a patented drug, and licensed out the compounds to multinational companies for clinical trials and commercialization. They have not taken the risk of completing the entire process of drug discovery on their own. But, things are changing now. Indian companies have realized the importance of having a strong R&D base and we may see some blockbuster drugs being manufactured in India. This, we hope, will further popularize the real options model of valuing R&D investments

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Cucchiella, Federica, and Massimo Gastaldi. "Real Option Approach for the Management of a New Product Development in the Pharmaceutical Sector." Advanced Materials Research 746 (August 2013): 551–56. http://dx.doi.org/10.4028/www.scientific.net/amr.746.551.

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The main scope of this paper is to perform a real options analysis that is often recommended as an emerging valuation technique for high-risk investment projects. The pharmaceutical sector is a sector where the real option can be positively applied to incorporate the flexibility and the risks of the new product development. In this paper the real option theory is applied to a pharmaceutical company that is developing a particular new product. Due to the uncertain nature of the new product development, it can be strategic to evaluate the real option benefits for the investment under analysis.

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Ford, David N., and Diane M. Lander. "Real option perceptions among project managers." Risk Management 13, no. 3 (July 2011): 122–46. http://dx.doi.org/10.1057/rm.2011.8.

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Dong, Jing-Hui, and Yoshio Iihara. "Investment Criterion in Real Option Models." Journal of Real Options and Strategy 4, no. 2 (2011): 159–67. http://dx.doi.org/10.12949/realopn.4.159.

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Haahtela, Tero. "Simulation methods in real option valuation." International Journal of Operational Research 25, no. 4 (2016): 487. http://dx.doi.org/10.1504/ijor.2016.075294.

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Nicholls, Gillian M., Neal A. Lewis, Liang Zhang, and Zhuoyuan Jiang. "Breakeven Volatility for Real Option Valuation." Engineering Management Journal 26, no. 2 (June 2014): 49–61. http://dx.doi.org/10.1080/10429247.2014.11432010.

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Nishihara, Michi. "Real option valuation of abandoned farmland." Review of Financial Economics 21, no. 4 (November 2012): 188–92. http://dx.doi.org/10.1016/j.rfe.2012.07.002.

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Gorman, Jack M. "Virtual Reality: A Real Treatment Option." CNS Spectrums 11, no. 1 (January 2006): 12–13. http://dx.doi.org/10.1017/s1092852900024081.

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