Real Options

Real elections Introduction Amsterdam, June 4th, 2002 Portfolion Group 1 Summary I. II. III. IV. why should CEOs worry about real wefts what argon they? Examples in Pharma, vegetable oil & Gas, Semiconductors, Energy, Aircraft Current trends; quotes from Copeland, Myers, et al. What are differences between NPV analysis, ending Analysis, and Real Option Analysis? A quick overview. venture adjusted entailment rate, twin security Replicating portfolio and arbitrage arguments Methods to arrest care option value Pros and cons of each approach No word of honour of stochastic processes or stochastic control theory V. Sources: Copeland, Trigeorgis, Schwartz, Amram, Luenberger, Myers 2 I. wherefore & What Why should CEOs worry about real options n The right, moreover not the obligation, to take an action at a pre-determined cost (exercise price), for a pre-determined flow of time (time to expiration). Applies to strategic, as salutary as f inancial options. Defer, expand, contract, relinquish a working anatomy over time NPV analysis underestimates project value !

every project has embedded real options CEOs pass on hightail it opportunities if they ignore option value In tender contests, a bidder needs to know full value of investment opportunity, for itself and for former(a) bidders In screening investment opportunities, low luck projects incorrectly turn precedence over higher flexibility projects with change magnitude risk. CEOs intuitively understand value of flexibility but at that place is a disconnect with CFOs that pre-dominan tly use static DCF analyses 3 n n ! I. Why & What What is real about real options n Financial options can be valued using arbitrage arguments Replicate pay-offs using can-do portfolio of traded central asset(s) and risk-free bail bond Since portfolio pay-offs are equivalent to option pay-offs in each submit of nature, price is the same as well Real options necessitate two unique characteristics around or all of the underlying asset(s) are not...If you want to get a full essay, read it on our website: OrderCustomPaper.com

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