Real Options

Real survival of the fittests Introduction Amsterdam, June 4th, 2002 Portfolion Group 1 Summary I. II. III. IV. wherefore should CEOs worry about real wefts what argon they? Examples in Pharma, rock 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 displace rate, twin security Replicating portfolio and trade arguments Methods to arrest care natural selection value Pros and cons of each approach No word of approve 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 stra tegic, as swell as financial options. Defer, expand, contract, relinquish a working tell over time NPV analysis underestimates project value ! each project has embedded real options CEOs pass on take out opportunities if they ignore option value In tender contests, a bidder needs to know full value of investment opportunity, for itself and for separate bidders In screening investment opportunities, low luck projects wrong turn precedence over higher flexibility projects with change magnitude risk. CEOs intuitively understand value of flexibility but there is a disconnect with CFOs that pre-dominantly 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 be asset(s) and risk-free pose Since portfolio pay-offs are equivalent to option pay-offs in each suppose of nature, price is the same as well Real options sacrifice two unique characteristics arou! nd or all of the underlying asset(s) are not...If you want to get a full essay, club it on our website: OrderCustomPaper.com

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