Decision tree analysis and real options: a reconciliation

Makropoulou, Vasiliki

doi:10.1002/mde.1532

Cited by 9 publications

(6 citation statements)

References 8 publications

(6 reference statements)

Supporting

Mentioning

Contrasting

Order By: Relevance

“…As discussed in Makropoulou (2011), in the NPV method, the uncertainty of future profits involves to examine different scenarios with optimistic and pessimistic market conditions and conducting sensitivity analysis. Decision makers should consider the investment cost attached to the initiation of a project, and as this cost increases, the required future expected profits should increase as well to guarantee a NPV > 0.…”

Section: Real Options Analysismentioning

confidence: 99%

Strategic introduction of a new product under uncertainty: A duopoly case

Terrazas-Santamaría

2021

Manage Decis Econ

View full text Add to dashboard Cite

We present a continuous-game of two symmetric firms competing strategically to launch a new product, simultaneously or sequentially. In the timing game, where each firm decides when to launch, we consider the uncertainty of profits and that the launch is successful with a probability that can be less than one. We find that when the first-mover advantage (FMA) is large, even with a low probability of success, one firm preempts the other deteriorating the leader's value function. The simultaneous investment dominates the sequential one when the FMA is small or when the probability is almost zero.

show abstract

Section: Real Options Analysismentioning

confidence: 99%

Strategic introduction of a new product under uncertainty: A duopoly case

Terrazas-Santamaría

2021

Manage Decis Econ

View full text Add to dashboard Cite

show abstract

“…However, that delay may cause that the firm loses the first‐mover advantages to be ahead in the competition (Li, Dhanaraj, & Shockley, ). In this way, Makropoulou () evidences that “option‐pricing theory provides the means for assessing that value”; that is, the flexibility value may be captured by real options.…”

Section: Real Options and Managerial Decisionsmentioning

confidence: 99%

“…However, that delay may cause that the firm loses the first-mover advantages to be ahead in the competition (Li, Dhanaraj, & Shockley, 2008). In this way, Makropoulou (2011) evidences that "option-pricing theory provides the means for assessing that value"; that is, the flexibility value may be captured by real options. Currently, given the high level of uncertainty inherent to new investment projects, real options are an important tool in the financial management of a company.…”

Section: Real Options and Managerial Decisionsmentioning

confidence: 99%

A mathematical approach to the deferment option of an investment project

Rambaud

Pérez

2019

Manage Decis Econ

View full text Add to dashboard Cite

This paper presents a model to calculate the value of the real option to defer an investment project within one, two, and in general n periods. The methodology used to deduce the mathematical expression of this option is based on the binomial model by constructing all possible future scenarios as well as their associated probabilities. Consequently, this manuscript provides the expression to assess the operative flexibility of a project when its deferment is possible. Indeed, this is an easy‐to‐handle and reliable tool that allows more accurate forecasts to reduce the uncertainty around a project then facilitating the managerial decision‐making processes.

show abstract

“…When considering managerial flexibility, managers can better evaluate project alternatives and allocate capital resources more efficiently [15]. The value of flexibility allows the decision-maker to decide what to do after some of the uncertainties related to the future are at least partially resolved [16][17][18].…”

Section: Introductionmentioning

confidence: 99%

Investments in Pinus elliottii Engelm. Plantations: Real Options Analysis in Discrete Time

Martins

Silva

Munis

et al. 2022

Forests

View full text Add to dashboard Cite

Background: The commonly used methods for the financial evaluation of plantation forest investment projects do not incorporate uncertainties and ignore the value related to flexibility. The real options analysis makes it possible to capture these values in investment projects, increasing their value and return. Despite this, studies involving real options in forest investment projects are scarce, specifically those related to Pinus spp. Therefore, this study aimed to: (a) analyze whether the real options analysis adds value to investment projects of Pinus elliottii Engelm. plantations; and (b) make the real options analysis more accessible to forest managers and potentially increase its use in the investment projects of Pinus spp. plantations. Methods: We evaluated two investment projects in P. elliottii plantations in southern Brazil, which differed in the way of obtaining the land for planting: with lease or purchase of land on a planning horizon of 21 years. In the real options analysis, we used deferral, expansion, and abandonment. Results: Individually, the deferral, expansion, and abandonment options add value to investment projects in Pinus elliottii plantations. The option to expand the forested area is one that adds the most value to the investment project with land lease. In the investment project with land purchase, it is abandonment. Conclusions: Investment projects in Pinus elliotti plantations that contemplate the land purchase analyzed through the real options analysis present higher financial returns than those that consider land lease, inverting the result provided by the traditional analysis.

show abstract

Decision tree analysis and real options: a reconciliation

Cited by 9 publications

References 8 publications

Strategic introduction of a new product under uncertainty: A duopoly case

Strategic introduction of a new product under uncertainty: A duopoly case

A mathematical approach to the deferment option of an investment project

Investments in Pinus elliottii Engelm. Plantations: Real Options Analysis in Discrete Time

Contact Info

Product

Resources

About