Valuing Modularity as a Real Option
AbstractWe provide a general valuation approach for capital budgeting decisions involving the modularization in the design of a system. Within the framework developed by Baldwin and Clark (Baldwin, C. Y., K. B. Clark. 2000. Design Rules: The Power of Modularity. MIT Press, Cambridge, MA), we implement a valuation approach using a numerical procedure based on the least-squares Monte Carlo method proposed by Longstaff and Schwartz (Longstaff, F. A., E. S. Schwartz. 2001. Valuing American options by simulation: A simple least-squares approach. Rev. Financial Stud. 14(1) 113-147). The approach is accurate, general, and flexible.
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Bibliographic InfoPaper provided by Warwick Business School, Finance Group in its series Working Papers with number wpn09-03.
Date of creation: 2009
Date of revision:
Other versions of this item:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G3 - Financial Economics - - Corporate Finance and Governance
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