TRIGEORGIS, L., Real Options: Managerial Flexibility and Strategy in Resource Allocation, The MIT Press, Cambridge, MA, 1996.  Home/Search   Document Not in Database   Summary   Related Articles   Check

....competitive market. The traditional approach of valuing an investment, which consists of using the net present value (NPV) rule to decide whether to invest, ignores the opportunity of waiting for new information before committing to the investment. As an alternative, the real options approach [2] [3] can be used to effectively model investment flexibility. A number of publications discuss the use of real options theory for optimal investment timing (e.g. 2] 3] 4] and references therein) but researchers in network planning and management do not appear to have used these concepts [5] ....

....opportunity of waiting for new information before committing to the investment. As an alternative, the real options approach [2] 3] can be used to effectively model investment flexibility. A number of publications discuss the use of real options theory for optimal investment timing (e.g. 2] [3], 4] and references therein) but researchers in network planning and management do not appear to have used these concepts [5] 6] In this paper, we apply a real options framework to the problem of the optimal timing investment into new capacity. Given a set of lines with different ....

L. Trigeorgis, Real Options: Managerial Flexibility and Strategy in Resource Allocation, MIT Press, Cambridge MA, 1996.

....these questions holistically. Instead the focus is on one particular question at the detriment of the others, often the first and second question. The literature on Real Options is good example of this trend where the focus is primarily on capturing the value of flexibility. The following extract [7] is the opening paragraph of a reference text on the subject; it illustrates the emphasis of the subject on the value of flexibility: Flexibility has value. While this statement is obvious at the conceptual level, it is surprisingly subtle at the applied level. Professional managers have long ....

L. Trigeorgis. Real Options: Managerial Flexibility and Strategy in Resource Allocation. MIT Press, 1996.

....is provided in Section 6. 2. Modeling the valuation of inter related projects Let i X be the market value of completed project i and it evolves according to a GBM process: i i i i i i dz X dt X dX s = 1) where denotes the rate of return on completed project i while t represents time [3]. i s denotes the standard deviation of the rate of return on completed project i. dt is the differential with respect to time while i dz is the differential of a standard Wiener process (with mean 0 and variance dt) for completed project i. We note that dz and j dz has correlation coefficient ij ....

.... 1 = d u [4] the suitable values of u p , i u , and i d are calculated as t i i D ) 2 1 ( 2 1 2 s s , D s , and D s , respectively [5] We note that, by replacing by r, risk free rate of return, u p becomes risk neutral probability (for risk neutral probability, see [3, 5]. 2.2 Steps toward Discrete Approximation of the Valuation Model The combination of two GBM processes for two projects can be approximated by a four branch lattice process. By matching the covariance of the binomial lattice processes and the covariance of the GBM processes for two projects, the ....

Trigeorgis, L., 1998, Real Options: Managerial Flexibility and Strategy in Resource Allocation, The MIT Press, Cambridge, Massachusetts.

.... crush spread options in the commodity markets [16, 22] credit spread options in the fixed income markets, index spread options in the equity markets [10] and the spark (electricity fuel) spread options in the energy markets [9, 18] They are also applied extensively in the area of real options [23] for both asset valuations and hedging a firm s production exposures. Despite their wide applicability and crucial role in managing the so called basis risk, hedging and pricing of this class of options remain di#cult and no consensus on a theoretical framework has emerged. The main obstacle to a ....

Trigeorgis, L. (1996). Real Options - Managerial Flexibility and Strategy in Resource Allocation. MIT Press, Cambridge, Mass. 19

.... 1 providing the first direct tests and evidence of interactions between real flexibility and financial structure, and more generally, bringing much needed empirical evidence to the large body of theoretical real options literature in finance and economics (see Dixit and Pindyck (1994) and Trigeorgis (1996) for surveys of the literature) This study also broadens our understanding of corporate risk management by highlighting real flexibility as an alternative risk management tool to diversification, derivatives and insurance. The scope firms have to manage risk through the exercise of real options ....

Trigeorgis, L., 1996, Real Options: Managerial Flexibility and Strategy in Resource Allocation, The MIT Press, Cambridge (Massachusets), 427 pp.

.... as natural resources (exploration and development) pharmaceutical (drug development) real estate (leasing decisions) manufacturing systems (convertible plants) aerospace (aircraft development and acquisition) and information technology (R D, technology valuation) For examples, see Trigeorgis [23] and Amram and Kulatalika [1] Applications to IT investments in general, and software development decisions in particular, are more recent, but quickly gaining popularity [5, 7, 9, 14 16, 21, 22] Here are a few example contexts: Flexibility projects: designing a system to easily accept COTS ....

Trigeorgis, L., Real options: managerial flexibility and strategy in resource allocation. 1994: MIT Press.

.... premium: a real options approach Standard NPV analysis falls short in measuring the value of strategic flexibility inherent in a project [9] The concept of real option addresses this shortcoming by combining NPV with techniques originally developed for the pricing of financial options [24, 15]. The real options approach can also be used to value strategic flexibility in software projects under uncertain conditions [20, 19, 14] The fundamental characteristic of an option is that it gives its holder (in the case of a real option, the management) the right, without the obligation, to ....

Trigeorgis, L., Real Options: Managerial Flexibility and Strategy in Resource Allocation, MIT Press, 1994.

.... AND REAL OPTIONS Standard NPV analysis falls short in measuring the value of strategic flexibility inherent in a project (Dixit and Pindyck, 1995) The concept of real option addresses this shortcoming by combining NPV with techniques originally developed for the pricing of financial options (Trigeorgis, 1994; Luehrman, 1998) This approach has recently been applied in the context of software engineering economics (Sullivan, 1996; Sullivan et al. 1998; Favaro et al. 1998) The fundamental characteristic of an option is that it gives its holder (in the case of a real option, the management) the ....

Trigeorgis, L., Real Options: Managerial Flexibility and Strategy in Resource Allocation, MIT Press, 1994.

.... (1977) and Kester (1984) techniques for valuing stylized real option projects have been established (see Brennan and Schwartz (1985a,b) and real option techniques have been applied to value projects (for example, see Paddock, Siegel and Smith (1988) Textbooks by Dixit and Pindyck (1994) and Trigeorgis (1996) provide a summary of the state of the field. However, empirical research on real options has lagged considerably behind the conceptual and theoretical contributions to the literature. Paddock, Siegel and Smith (1988) not only establish an option pricing model to value offshore petroleum leases, ....

Trigeorgis, ed., Real Options in Capital Invesment (Westport, CT: Praeger). Trigeorgis, L., 1996, Real Options Managerial Flexibility and Strategy in Resource Allocation, The MIT Press, 1-388.

....the task of incorporating strategic elements into real options models. Smets #1993# and Grenadier #1996# analyze foreign direct investment and real estate development respectively using continuous time, leader follower games in which #rms strategically choose trigger points for their investments. Trigeorgis #1996# and Smit and Trigeorgis #1997# look at strategic investment decisions by di#erent #rms using binomial models. Other relevant papers include Williams #1993#, Leahy #1993# and Fries, Miller, and Perraudin #1997# which consider real investment decisions in a perfectly competitive industry ....

Trigeorgis, L. #1996#: Real Options: Managerial Flexibility and Strategy in Resource Allocation. MIT Press, Cambridge, Mass.

....held. To the extent that an asset is flexible, its owner can intervene actively to optimize value as the uncertain future is revealed. Averaging cash flow streams over all possible futures ignores the value of the ability to exploit flexibility, e.g. by abandoning a project if markets dwindle [13, 47, 48, 9, 24]. There are several theoretical formulations in finance and decision theory able to capture the value of flexibility, including dynamic net present value and extended decision analysis. They all share the ability to model dynamic optimization. Designers can change products and plans as new ....

....theory was thus developed precisely to address the inability of traditional capital budgeting to address strategic value. Today the options Myers saw are called growth options [24, 32] Many other real options are now recognized. Types of real options that have been analyzed include the following [13, 48]: ffl defer decisions to invest until optimal to do so [13, 28, 32] ffl default on a project that is structured in phases or abandon a project for its salvage value [19, 30, 33] ffl expand or contract production if favorable or unfavorable conditions emerge [38] ffl switch materials used ....

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L. Trigeorgis. Real Options: Managerial Flexibility and Strategy in Resource Allocation. (Cambridge, Massachusetts: MIT Press), 1996.

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TRIGEORGIS, L., Real Options: Managerial Flexibility and Strategy in Resource Allocation, The MIT Press, Cambridge, MA, 1996.

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L. Trigeorgis, Real Options: Managerial Flexibility and Strategy in Resource Allocation, MIT Press, 1996.

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L. Trigeorgis. Real Options: Managerial Flexibility and Strategy in Resource Allocation. MIT Press, 1994.

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. L. Trigeorgis, Real Options: Managerial Flexibility and Strategy in Resource Allocation, (Cambridge, Massachusetts: MIT Press), 1997.

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L. Trigeorgis. Real Options: Managerial Flexibility and Strategy in Resource Allocation. MIT Press, Cambridge, Mass., 1996.

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L. Trigeorgis. Real Options: Managerial Flexibility and Strategy in Resource Allocation. MIT Press, 1996.

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Lenos Trigeorgis. Real Options: Managerial Flexibility and Strategy in Resource Allocation. MIT Press, Cambridge, 1996.

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Trigeorgis, L., 1996, Real options: managerial flexibility and strategy in resource allocation, MIT press, Cambridge, MA.

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Lenos Trigeorgis, editor. Real Options: Managerial Flexibility and Strategy in Resource Allocation. MIT Press, Cambridge, MA, 1996.

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Trigeorgis, L. 1996. Real Options - Managerial Flexibility and Strategy in Resource Allocation. Cambridge: MIT Press.

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Trigeorgis, L., "Real Options, Managerial Flexibility and Strategy in Resource Allocation", The MIT Press, Cambridge, Massachusetts, 1997.

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Trigeorgis, L. (1996). Real Options - Managerial Flexibility and Strategy in Resource Allocation. MIT Press.

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Lenos Trigeorgis, editor. Real Options: Managerial Flexibility and Strategy in Resource Allocation. MIT Press, Cambridge, MA, 1996.

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Trigeorgis, L., "Real Options, Managerial Flexibility and Strategy in Resource Allocation", The MIT Press, Cambridge, Massachusetts, 1997.

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