Realizing the Potential of Real Options: Does Theory Meet Practice?

Triantis, Alexander J.

doi:10.1111/j.1745-6622.2005.00028.x

Cited by 83 publications

(95 citation statements)

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“…Reducing the complexity of the real options approach would help to increase use of real options among practitioners. Our findings support Triantis's (2005) hypothesis that practitioners require simplified real options heuristics rather than advanced computational methods.…”

Section: Resultssupporting

confidence: 82%

“…The most frequent application is found in mergers and acquisitions, followed by new product introductions and R&D. Smith and Triantis (1995) argue that many of the strategic synergies in an acquisition should be seen as growth options that are acquired, developed, and potentially exercised in the future if they prove fruitful. Yet we are surprised to find that 83% of Scandinavian real options users apply the technique to M&A decisions, as this is relatively novel phenomenon (Triantis, 2005). In comparison, respondents to Block's survey only ranked M&A as the third most frequent type of application.…”

Section: Real Options Applications and Techniquesmentioning

confidence: 94%

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The use of real option theory in Scandinavia's largest companies

Horn

Kjærland

Molnár

et al. 2015

International Review of Financial Analysis

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We survey the CFOs of 1500 largest companies from Norway, Denmark and Sweden (500 from each country) about their capital budgeting process with focus on the real options analysis. Only 6% of the respondents use real options, whereas the most used technique, the net present value, is used by 74% of the CFOs. Real options are more often used by companies in the energy and biotech sectors, large companies and companies with high capital and R&D expenditures. Lack of familiarity is the most important reason for non-use, where 70% of respondents report to not be familiar with real options concepts and techniques. For the respondents familiar with the framework, the complexity of real options is the main hinder for implementation.

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Section: Resultssupporting

confidence: 82%

Section: Real Options Applications and Techniquesmentioning

confidence: 94%

The use of real option theory in Scandinavia's largest companies

Horn

Kjærland

Molnár

et al. 2015

International Review of Financial Analysis

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show abstract

“…In this context, it is crucial that a valuation methodology can be easily implemented in corporate R&D management (Triantis 2005). The implementation of our model requires the following procedure, using standard spreadsheet calculation programs such as MS Excel TM .…”

Section: Implementing the Model In Corporate Randd Managementmentioning

confidence: 99%

“…Among the obstacles to more widespread adoption of real options analysis, the complexity of option pricing models and a perceived lack of transparency stand out (Hartmann and Hassan 2006, for further evidence, see Baker et al 2011;Bowman and Moskowitz 2001;Lander and Pinches 1998). Thus, continuous-time analytical option pricing models in particular are characterized by ''low practical validity'' (Worren et al 2002) because of their advanced, intransparent valuation algorithms (Lander and Pinches 1998;Triantis 2005). Consequently, Hartmann and Hassan (2006: 353) emphasize that ''academia is challenged to develop more adequate models to boost acceptance,'' and they emphasize the potential of binomial approaches.…”

mentioning

confidence: 99%

Modeling sequential R&D investments: a binomial compound option approach

Hauschild

Reimsbach

2014

Bus Res

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In this paper, we propose a binomial approach to modeling sequential R&D investments. More specifically, we present a compound real options approach, simplifying the existing valuation methodology. Based upon the same set of assumptions as prior models, we show that the number of computational steps for valuing any compound option can be reduced to a single step. We demonstrate the applicability of our approach using the real-world example of valuing a new drug application. Overall, our work provides a heuristic framework for fostering the adoption of binomial compound option valuation techniques in R&D management.

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“…e-poduzećima, uspjeh uglavnom izostaje (Madhani, 2008;Pindyck, 1995;Triantis, 2005.). Realno je da poduzeća teško prihvaćaju nove alate, naroĉito one sofisticirane poput vrednovanja stvarnih opcija.…”

Section: Issn 1848-1035 49unclassified

Uloga i primjena stvarnih opcija u menadžerskom odlučivanju

Čičin-Šain

Krajnović

Herenda

2017

oec

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Rad započinje kratkom kritikom tradicionalnih metoda budžetiranja kapitala, poput neto sadašnje vrijednosti, koje uslijed novih uvjeta poslovanja u globalnoj ekonomiji postaju neadekvatna metoda alokacije kapitala poduzeća. U svrhu osiguranja fleksibilnosti u poslovanju, potrebno je dinamiziranje tradicionalnog budžetiranja kapitala. Kao rješenje tog problema, rad predlaže vrednovanje stvarnih opcija koje imaju određenu vrijednost. Uključivanjem tih vrijednosti u analizu investicijskih projekata dinamizira se proces budžetiranja kapitala. Unatoč širokoj prihvaćenosti teorije stvarnih opcija, njezina primjena u praksi u velikoj mjeri izostaje, što je ujedno jedan od središnjih problema kojim se rad bavi. Vrednovanje stvarnih opcija je multidisciplinarno područje, zahtijeva znanja iz područja mikroekonomije, financija, menadžmenta i informacijske tehnologije, tj. zahtijeva mnogo vremena i truda menadžera te je u kalkulacijskom smislu intenzivno. To je ujedno i razlog nedostatka razumijevanja ovog pristupa budžetiranju kapitala i stoga vjerojatno nedostatnoj upotrebi u praksi. Stvarne opcije imaju bitnu ulogu pri budžetiranju kapitala jer predstavljaju svojevrstan okvir za donošenje strateških odluka iz razloga što omogućavaju fleksibilnost u poslovanju poduzeća, tj. čine poduzeće sposobnijim da se prilagođava nastalim okolnostima. Kao takvo, vrednovanje stvarnih opcija služi efikasnijem ostvarivanju ciljeva i strategije poduzeća. U radu su također prikazane tri osnovne vrste stvarnih opcija – opcija širenja, opcija napuštanja i opcija čekanja, kako bi se razumjelo njihovo vrednovanje i inkorporiranje u analizu investicijskih projekata.

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Realizing the Potential of Real Options: Does Theory Meet Practice?

Cited by 83 publications

References 0 publications

The use of real option theory in Scandinavia's largest companies

The use of real option theory in Scandinavia's largest companies

Modeling sequential R&D investments: a binomial compound option approach

Uloga i primjena stvarnih opcija u menadžerskom odlučivanju

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