22 0 obj endobj experience in econometric modeling, financial analysis, real options, eco-nomic analysis, and statistics. To value option, set up risk-free portfolio as before. Value of portfolio today is φ0 = F0 −nP0 Value of a widget factory next year is V1 = ∞ ∑ t=0 P1/(1.1)t = 11P1 Robert Pindyck (MIT) LECTURES ON REAL OPTIONS — PART I August, 2008 19 / 44 33 0 obj >> endobj << /S /GoTo /D (Outline0.5) >> stream Introduction) the future financial performance of a business, business ownership interest, or security Real options are similar to financial options in that firms with discretionary investment opportunities have the right—but are under no obligation—to acquire expected cash flows by making an investment on or before the date that the (investment) opportunity ceases to exist. endobj They use the risk-neutral probabilities from the option pricing model in the decision tree to solve for the option’s value. << /S /GoTo /D (Outline0.2) >> << /S /GoTo /D [35 0 R /Fit ] >> endobj xڕZK���ϯPr����7E�슷��ě�����*cHH��"e��q�|��n�8��4�~|�uc�~���(��2����qSě"*�8)6����o>|��4�~�a��n�f����m����.�jյ�I����}�Z�VJ4�i{R���jO���I�1mS�8�Rx��� �7�i��(�y��Qćb�Iq�V��]\n_���E�Uk��V���]'�6q�y�� X��6�4 �2& �����h[��Vp�ʋ���ߏ�4Ϸ��=(���w��t�&B��Y�6����M �E�ͳ�t٤��6����y��1�aS�i��'YPJ+޿w�a+a�$�*���a����ʗ�}�l,�!��>�j�P����&�E�wG��>Ӏ�Q��Ia~3��v�"��$���,4}���m�Z��,�#-�O � oS�c��>��2�졯x�{l�e�%�l�a�i_�h1�Y\� �� A�~�४:���5������Ǿ��῍�}4��I�f�t�p�;�۪k5�@zLA���ףb�XG)�س^5*��*�4��c�,@�d��^�p����%쯶k�O��hp�!JN�s�ۛ�c[���/�2�&ڵ�I0�l�ܡPW}א��3�z!�(�3���~������o; +ș��u��*K�����V��I�6�g{��ϪiX��kw"�������Un�Uw5�9W�츬X�#A`�K� ci%�J����nf�DZ>IM��@�4�y^� << /S /GoTo /D (Outline0.6) >> %���� endobj A six steps framework for the resolution of a valuation problem using the binomial technique will be introduced. The Economic Analysis of Real Option . 3 0 obj << Real Options Analysis can overcome their limitations. Examples of application of the method will precede the conclusions. (4. Real Options Analysis. REAL OPTION ANALYSIS EXAMPLE 1 A company is considering investing in a project. 29 0 obj Cost Uncertainty) 13 0 obj g��V���?�[0]l}۹. The objective probability the market will go up is 20%. Trees to Solve Real-Option Valuation Problems, Decision Analysis, v2, 69-88. Real options analysis posits that the value of an option rises with increasing uncertainty in the underlying asset. 17 0 obj zh{Hd[5۰%#�ߏ�վ�+�n�ʰH���ys� �#�NX&��$-���H�MGT��%O��T3�����^iWk}�f7����S�s���=R;+���w�iŚ?g�J���0�*��~�����������pV� VTm47Ҙ�\G��,Xnyp���[��/�3Z�ٰW���~{�L�{�~�� ! 25 0 obj 40 0 obj << /Length 1258 << /S /GoTo /D (Outline0.1) >> Robert P. Schweihs. 10 0 obj << /S /GoTo /D (Outline0.4) >> /Filter /FlateDecode His experience prior to joining KPMG included (6. The discounted cash flow method does not always completely capture the uncertainty of . Stock Option Valuation Insights. Section 3 extends the analysis using basic endobj endobj (1. Value. << /S /GoTo /D (Outline0.3) >> 18 0 obj Scale Versus Flexibility) {|��]_���C��I\:����F$I&w=20LY��T��}e/d@���Ǡ�`w�&��;�02�D�_�Qa�#]����[METZ%���ֿҙQMM���࢞Z�x�*/ܳ�%k�"�N�!G)���{��:i�O�U��s��K2� ��w��I���� �Vx����r��,�5T+���w m`S�����ѩty�ԕ �U��24v�|ԋQ���T�tl�D/I�!��-x)�l����!�:P�@��VWJ�X�D�z�UZU���B�)䭮�7�B����Ɛ�v���v:�֨_�U�34��3p��仯��"bk>��P+�x@�. Risky R\046D) During his tenure both at Decisioneering and at KPMG Consulting, he consulted on real options and financial valuation for many Fortune 100 firms. x��WKo7��W���o�渪�"~I stream 34 0 obj >> The appropriate risk-adjusted rate of return (cost of capital) is 25%. (2. endobj 26 0 obj Simple Examples) 21 0 obj endobj /Filter /FlateDecode (5. /Length 3400 examples of proprietary investment decisions (options) under uncertainty, and later introduce the strategic dimension of competitive reactions. 14 0 obj h$ ��Oy���%���s�a=��=�L ��EL�K�t**m^`@�0.�3oRɁs���ʓ��Kӹ���` endobj Analogy to Financial Options) 30 0 obj %PDF-1.5 Real options analysis is an important aspect of capital budgeting, one of the central problems of corporate nance, where the goal is to gure out the fair risk-adjusted value of investment opportunities and to then decide which opportunities { if any { should be pursued. %PDF-1.4 Real options analysis applies to sequential decision-making under uncertainty. endobj The next section uses two basic numerical examples to illustrate the application of real options valuation principles to mining and to R&D programs. Un ringraziamento speciale a mio papà Lorenzo, a mia mamma Paola (3. �q�d�-Π�+0��>0JHǔ͛ns< g�kҢ�L����/��mD�NZ]�Qa��d!�E�����1� endobj The present value (PV) of future discounted expected cash flows is either 3000 if the market goes up or 500 if the market goes down next year. �3���_k0t�ћè����=�J�iM6��� Wz9�� ��{�����i�:cA�ˣP�}B�U)?�E ?~ �Fz2Ǟ��I4�JU�$�E�uf��UZ� ��~��kY��������o�F@�����7��p�4265;���L���=`�f�,�!�&�'���&J�$�cJoY��������2�,�DSdV)��x�@�r��qD�]���@��BP%�M���c��f����DRˡ��LcKSJ�2W�'�z7�Ch��El�9P�2#���A�eY��h �~ �M����ku����Y�3�y��(`� �șէh�� endobj The maximum of option values indicates which strategy should be chosen by the company.

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