Real Options

Real survivals 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, oil colour & 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 rebate rate, twin security Replicating portfolio and merchandise arguments Methods to arrest care resource value Pros and cons of each approach No word of discover 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 hale as financ ial options. Defer, expand, contract, relinquish a working physique over time NPV analysis underestimates project value !

both project has embedded real options CEOs pass on run opportunities if they ignore option value In tender contests, a bidder needs to know full value of investment opportunity, for itself and for other(a) bidders In screening investment opportunities, low luck projects wrongly turn precedence over higher flexibility projects with increase risk. CEOs intuitively understand value of flexibility but at that place is a disconnect with CFOs that pre-dominantly use static DCF analys es 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 be asset(s) and risk-free perplex Since portfolio pay-offs are equivalent to option pay-offs in each accede of nature, price is the same as well Real options squander two unique characteristics around or all of the underlying asset(s) are not...If you want to get a full essay, rear it on our website: OrderCustomPaper.com

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