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Description of Real Options – Managerial Flexibility & Strategy in Resource Allocation

In the 1970s and the 1980s, developments in the valuation of capital-investment opportunities based on options pricing revolutionized capital budgeting. Managerial flexibility to adapt and revise future decisions in order to capitalize on favorable future opportunities or to limit losses has proven vital to long-term corporate success in an uncertain and changing marketplace.In this book Lenos Trigeorgis, who has helped shape the field of real options, brings together a wealth of previously scattered knowledge and research on the new flexibility in corporate resource allocation and in the evaluation of investment alternatives brought about by the shift from static cash-flow approaches to the more dynamic paradigm of real options -- an approach that incorporates decisions on whether to defer, expand, contract, abandon, switch use, or otherwise alter a capital investment.Comprehensive in scope, Real Options reviews current techniques of capital budgeting and details an approach (based on the pricing of options) that provides a means of quantifying the elusive elements of managerial flexibility in the face of unexpected changes in the market.
Also discussed are the strategic value of new technology, project interdependence, and competitive interaction.The ability to value real options has so dramatically altered the way in which corporate resources are allocated that future textbooks on capital budgeting will bear little resemblance to those of even the recent past. Real Options is a pioneer in this area, coupling a coherent picture of how option theory is used with practical insights in into real-world applications.

Title Information

ISBN:

9780262201025

Pages:

446 pages

Format:

Hardback

Product Code:

13619

Publisher:

MIT Press

Published:

02/05/1996

Edition:

5th Edition

Press and Industry Reviews

'Discounted cash flow understates value when flexibility matters, when decisions come in several stages (as in R&D), and when investments are undertaken for strategic reasons. DCF misses the value of real options. This book shows how real options can be identified and properly valued. It is a big step toward application of option pricing concepts in practical corporate finance.' - Stuart C. Myers, Gordon Y. Billard Professor of Finance, Sloan School of Management, Massachusetts Institute of Technology.

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About Lenos Trigeorgis

Lenos Trigeorgis is Professor of Finance, School of Economics and Management, the University of Cyprus, and President of the Real Options Group.

Contents of Real Options – Managerial Flexibility & Strategy in Resource Allocation

1. Introduction and Overview

2. Traditional Capital Budgeting

3. Option-Pricing Theory and Financial-Options Applications

4. A Conceptual Options Framework for Capital Budgeting

5. Quantifying Flexibility in Capital Budgeting : Discrete-Time Analysis

6. Quantifying Flexibility : Some continuous-Time Analytic Models

7. Interactions among Multiple Real Options

8. Strategic Planning and Control

9. Competition and Strategy

10. Numerical Analysis

11. Applications

12. Conclusions and Implications

Appendix