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A Pragmatic Guide to Real OptionsApplying More Real Options Analysis into an NPV-Embedded Binomial Tree

A Pragmatic Guide to Real Options: Applying More Real Options Analysis into an NPV-Embedded... [In the previous chapter, real options that allowed for the discontinuation of a project prior to its completion were shown to add value to it. In fact, a project that was initially viewed as being not viable (i.e., net present value [NPV] was negative) became potentially viable (i.e., NPV was positive) when the real options were considered. The real options analysis was implemented using riskadjusted, pricing and certainty equivalence for valuation purposes. However, risk-neutral pricing would have significantly reduced the computations within the analysis.] http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png

A Pragmatic Guide to Real OptionsApplying More Real Options Analysis into an NPV-Embedded Binomial Tree

Arnold, Tom
Springer Journals — Nov 12, 2015
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26 pages

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Publisher
Palgrave Macmillan US
Copyright
© Palgrave Macmillan, a division of Nature America Inc. 2014
ISBN
978-1-349-48301-3
Pages
117 –143
DOI
10.1057/9781137391162_6
Publisher site
See Chapter on Publisher Site

Abstract

[In the previous chapter, real options that allowed for the discontinuation of a project prior to its completion were shown to add value to it. In fact, a project that was initially viewed as being not viable (i.e., net present value [NPV] was negative) became potentially viable (i.e., NPV was positive) when the real options were considered. The real options analysis was implemented using riskadjusted, pricing and certainty equivalence for valuation purposes. However, risk-neutral pricing would have significantly reduced the computations within the analysis.]

Published: Nov 12, 2015

Keywords: Cash Flow; Real Option; Excess Capacity; Previous Chapter; Future Cash Flow

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