“Good lattice points, discrepancy and numerical integration.”, © Springer Science+Business Media New York 2013, https://doi.org/10.1007/978-1-4614-5360-4, Reference Module Humanities and Social Sciences, A Critical Evaluation of the Portfolio Performance Indices Under Rank Transformation, Corporate Failure: Definitions, Methods, and Failure Prediction Models, Experimental Economics and the Theory of Finance, Merger and Acquisition: Definitions, Motives, and Market Responses, Multistage Compound Real Options: Theory and Application, The Microstructure/Micro-Finance Approach to Exchange Rates, Fundamental Tradeoffs in the Publicly Traded Corporation. The authors examine a multi-phased compound (nested) path-dependent real option consisting of mutually exclusive options - a sequential option to invest as well as expand, repower, contract and abandon options. We use cookies to help provide and enhance our service and tailor content and ads. © 2016 Elsevier Ltd. All rights reserved. “Options in capital budgeting: managerial flexibility and strategy in resource allocation.” Cambridge, MA: MIT Press. “Investment opportunities as real options: getting started on the numbers.”, Lyness, J.N, and Gabriel, J.R. (1969). %PDF-1.4 %���� Black, F. and Scholes, M. (1973). The worldwide average sales price is the underlying variable and the average production cost of the new DRAM foundry is the exercise price. “Computation of the Bivariate Normal Integral.”, Drezner, Z. It has been found that there is only a 4.6% difference between the market IPO price and the estimated one. Copyright © 2020 Elsevier B.V. or its licensors or contributors. Bhide, A.V. (1992). The negative dividend-like yield results from the negative correlation between the newly constructed DRAM foundry and its twin security, implying the diversification advantage of a new generation of DRAM foundry with a relative low cost of investment opportunity. 0000002161 00000 n “Case studies on real options.”, Korobov, N.M. (1957). “Finding a zero by means of successive linear interpolation,” in Dejon and Henrici (eds. Part of Springer Nature. “The nature of option interactions and the valuation of investment with multiple real options.”, Trigeorgis, L. (1993b). %%EOF (1993). 69 0 obj <> endobj 0000000016 00000 n 0000000556 00000 n Over 10 million scientific documents at your fingertips. “The valuation of options for alternative stochastic processes.”, Cox, J.C., Ingersoll, J.E. “Algorithms for Minimization without Derivatives.” New Jersey: Prentice-Hall. These projects’ net present value (NPV) is very often close to zero, which renders them a good candidate for the application of real options valuation methodology of investment project appraisal. (1969). In empirical study, we evaluate the initial public offering (IPO) price of a new DRAM chipmaker in Taiwan. In addition, most renewable energy electricity generation (RES-E) projects are characterized by considerable uncertainty and sequential decision-making. “Strategy as Portfolio of Real Options.”, Luehrman, T.A (1998b). “Finance theory and financial strategy.”, Myers, S.C. (1987). (2002). This is mainly because the underlying of real option is a nontraded asset, which brings dividend-like yield into the formula of compound real options. “Macroeconomics and Reality.”, Steen, N.M., Byrne, G.D. and Gelbard, E.M. (1969). (2000). The twin security is defined to be a portfolio of DRAM manufacturing and packaging firms publicly listed in Taiwan stock markets. “Stocks Bonds, Bills, and Inflation Yearbook.” Chicago: Ibbotson Associates. 0000000869 00000 n Compound real options are combinations of real options, where an exercise of a real option opens another real option. Not logged in All the aforementioned options and paths are illustrated in the multiphased sequential compound (nested) mutually exclusive path dependent real options strategy decision tree for the wind farm project in Fig. “Numerical computation of the multivariate normal probabilities.”. https://doi.org/10.1016/j.rser.2016.11.001. “The valuation of corporate liabilities as compound options.”, Geske, R. (1979). Compound Real Options with the Pay-off Method: a Three-Stage R&D Case Illustration Compound real options are combinations of real options, where an exercise of a real option opens another real option. 0000002237 00000 n 0000004162 00000 n ), Drezner, Z. and Antikarov, V. (2001). 0000001184 00000 n 0000004828 00000 n We estimate the dividend-like yield with two methods, and find the yield to be negative. “Finance theory and financial strategy.”, Pickles, E. and Smith, J.L. We explore primarily the problems encountered in multivariate normal integration and the difficulty in root-finding in the presence of unknown critical value when applying compound real call option to evaluating multistage, sequential high-tech investment decisions. “The pricing of options and corporate liabilities.”, Brennan, M.J. and Schwartz, E.S. The paper concludes that the value of the compound real option increases the overall value of the innovative project due to the factor of staged investment and a possibility to stop financing. and Sinquefield, R.A. (1999). (1987). “Real options: managerial flexibility and strategy in resource allocation.” Cambridge, MA: MIT Press. (1978). (1993). This is a preview of subscription content, Amram, M.H. Constantinides, G.M. By continuing you agree to the use of cookies. (1987). We acknowledge the financial support from National Science Council of R.O.C. “Comment on a new method for the evaluation of multidimensional integrals.”, Majd, S. and Pindyck, R.S. <<465A22B30A48F1409107ED394B5E1623>]>> “Computation of the multivariate normal integral.”, Duan, C., Lin, W.T. “Randomization of number theoretic methods for multiple integration.”, Dekker, T.J. (1969). xref “Valuing managerial flexibility.”, Zaremba, S.K. Trigeorgis, L. (1994). (1998a). “Gaussian quadratures for integrals.”, Trigeorgis, L. (1993a). “Comparison of methods for the computation of multivariate normal probabilities.” Working Paper. 0000001919 00000 n “Investment and the valuation of firms when there is an option to shut down.”, Merton, R.C. The binomial tree model spans a 15 year period consisting of a 2 year investment period and a 13 year operating period, the first 12 years of which are protected by Feed-in-Tariffs according to local renewable energy regulations. “The valuation of compound options.”, Granger, C.W.J. “Zur angenäherten berechnung mehrfacher integrale.”. “Determinants of corporate borrowing.”, Myers, S.C. (1984). and Lee, C. (2003). (1973) “An intertemporal capital asset pricing model.”, Myers, S.C. (1977). “Real options and interactions with financial flexibility.”. This paper examines the real options valuation of a potential onshore wind farm project in Serbia. ScienceDirect ® is a registered trademark of Elsevier B.V. ScienceDirect ® is a registered trademark of Elsevier B.V. Geske, R. (1977). “Real options.”. Genz, A. Ibbotson, R.G. The final binomial tree results show that the proposed sequence of options increases project value by transforming higher risk and lower return in the initial discounted cash flow model, to lower risk and higher return in the RO model. In empirical study, we evaluate the initial public offering (IPO) price of a new DRAM chipmaker in Taiwan. 81 0 obj<>stream © 2020 Springer Nature Switzerland AG. This is mainly because the underlying of real option is a nontraded asset, which brings dividend-like yield into the formula of compound real options. (1999). “The approximate calculation of multiple integral using number-theoretic methods.”, Lin, W.T. (1985). 0000001078 00000 n trailer 128.199.125.165. “Real Options: A Practitioner’s Guide.” New York: Texere, LLC. Copeland, T.E. 69 13 0 0000005248 00000 n (1966). It is found that secant method for finding critical values combined with Lattice method and run by Fortran gave the fastest computing speed, taking only 1 s to perform the computation. These methods, combined with appropriate root-finding method, were run by computer programs Fortran and Matlab. “Petroleum property valuation: a binomial lattice implementation of option pricing theory.”, Pindyck, R.S.