Valuing Real Options: Frequently Made Errors

Valuing flexibility in demand-side response: A real options approach

The investment interests in the electricity industry are transmitted through various mechanisms to other economic activities. This paper considers methods for esteeming the adaptability of demand-side response (DSR) in its capacity to react to future uncertainties. The capacity to evaluate this adaptability is particularly critical for vitality frameworks speculations given their extensive and ...

Valuing Real Options using Implied Binomial Trees

A real option on a commodity is valued using an implied binomial tree (IBT) calibrated using commodity futures options prices. Estimating an IBT in the absence of spot options (the norm for commodities) allows real option models to be calibrated for the first time to market-implied probability distributions for commodity prices. Also, the existence of long-dated futures options means that good ...

Valuing Real Options: Insight from Competitive Strategy

Valuing Real Options in Incomplete Markets

In this paper, we develop a framework for valuing real options and portfolios of real options in incomplete markets and show that it is a consistent generalization of contingent claims analysis, which is conventionally used for real option valuation in complete markets. The development of a framework for incomplete markets is motivated by the difficulty to construct replicating portfolios in pr...

A Real Options-based Framework for Valuing

In recent years, considerable research has focused on understanding the value derived from market-based assets such as brands and consumer relationships with comparatively little attention being directed at business relationships. We address this gap in the literature by proposing a real options-based framework for valuing business relationships. The framework provides new insights into the rol...