Advanced Search
MyIDEAS: Login to save this paper or follow this series

A synthetic protective put strategy for phased investment in projects without an outright deferral

Contents:

Author Info

  • Sukanto Bhattacharya
Registered author(s):

    Abstract

    In this paper we propose and computationally demonstrate a synthetic protective put strategy for real options. Specifically, we deal with the problem of deferral option when an outright deferral is not permissible due to competitive pressures. We demonstrate that in such a situation an appropriate strategy would be to invest in the new project in phases rather than doing it all at once. By setting the owner’s equity in the project equal to the price of a call option on the value of the project, we set up the replicating portfolio for a protective put on the project. Our method is a logical extension of the financial protective put in the real options scenario and is rather simple and practicable for businesses to adopt and apply.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://128.118.178.162/eps/fin/papers/0507/0507005.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by EconWPA in its series Finance with number 0507005.

    as in new window
    Length: 18 pages
    Date of creation: 04 Jul 2005
    Date of revision: 04 Jul 2005
    Handle: RePEc:wpa:wuwpfi:0507005

    Note: Type of Document - pdf; pages: 18
    Contact details of provider:
    Web page: http://128.118.178.162

    Related research

    Keywords: synthetic protective put; replicating portfolio; deferral option;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Pindyck, Robert S., 1993. "Investments of uncertain cost," Journal of Financial Economics, Elsevier, vol. 34(1), pages 53-76, August.
    2. Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
    3. Bhattacharya, Sudipto, 1978. "Project Valuation with Mean-Reverting Cash Flow Streams," Journal of Finance, American Finance Association, vol. 33(5), pages 1317-31, December.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:wpa:wuwpfi:0507005. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.