Real Options in Theory and Practice
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Real Options in Theory and Practice

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Decision makers in business and economics face a staggering array of problems. Managers of growing firms have to decide which growth options will expand their business. Governments have to decide which infrastructure investments to undertake. Managers of oil firms must decide how rapidly to deplete their reserves. Owners of land must decide when and how to develop. Operators of power plants must decide when to start them up and when to shut them down. While these problems seem quite diverse, they share many important features. In each case, the decision maker must choose when to take a particular action that will be difficult, if not impossible, to reverse. In each case, the consequences of taking (or not taking) that action are uncertain. The timing and nature of these actions directly affect revenue. Real options that often vary radically from one problem to another. The book focuses on building a general approach to solving problems from the ground up to show readers how real options can be assembled in a way appropriate to the individual problem being analyzed. The book will inform both practitioners who want to develop their analytical techniques and also graduate students who will eventually become practitioners. The real-options approach to capital budgeting (and business decision-making more generally) was introduced 30 years ago and is now widely accepted. While there are now many books that introduce the concept of real options to a general business audience, students and practitioners have been given little guidance as to how to actually implement these concepts in practice. Each book will feature a CD with spreadsheets intended for a broad range of real-world applications.show more

Product details

  • Hardback | 432 pages
  • 162.56 x 236.22 x 27.94mm | 748.42g
  • Oxford University Press Inc
  • New York, United States
  • English
  • New.
  • 52 black and white line illustrations
  • 0195380630
  • 9780195380637
  • 890,473

About Graeme Guthrie

Graeme Guthrie is a professor in the School of Economics and Finance at Victoria University of Wellington.show more

Table of contents

PREFACE ; 1 Introduction ; I. Foundations ; 2. The modeling framework ; 3. Valuing single-period cash flows ; 4. Valuing multi-period cash flows ; 5. Combining valuation and decision making ; II Component Real Options ; 6. Options that do not affect the state of a project ; 7. Simple timing options ; 8. Compound timing options ; 9. Uber-compound timing options 200 ; 10. Switching options ; 11. Learning options ; III Calibrating the Model 293 ; 12. Calibration using spot and futures price data 294 ; 13. Calibration using option price data ; 14. Calibrating trees of alternative state variables ; IV Putting the Pieces Together ; 15. Forestry management and valuation ; 16. Developing a gas field ; 17. Mothballing an ethanol plant ; 18. Where to from here?show more

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