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Real Options Valuation: A Case Study of an E-commerce Company


  • Rocío Sáenz-Diez
  • Ricardo Gimeno
  • Carlos de Abajo


This paper presents a real options valuation model with original solutions to some issues that arise frequently when trying to apply these models to real-life situations. The authors build on existing models by introducing an innovative and intuitive risk neutral adjustment that allows us to work with all the simulated paths. The problem of incorporating real options into each path is solved with a "nearest neighbors" technique, and uncertainty is simulated using a beta distribution that adapts better to company-specific information. Copyright (c) 2008 Morgan Stanley.

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  • Rocío Sáenz-Diez & Ricardo Gimeno & Carlos de Abajo, 2008. "Real Options Valuation: A Case Study of an E-commerce Company," Journal of Applied Corporate Finance, Morgan Stanley, vol. 20(2), pages 129-143.
  • Handle: RePEc:bla:jacrfn:v:20:y:2008:i:2:p:129-143

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    References listed on IDEAS

    1. Trigeorgis, Lenos, 1993. "The Nature of Option Interactions and the Valuation of Investments with Multiple Real Options," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(01), pages 1-20, March.
    2. Cortazar, Gonzalo & Schwartz, Eduardo S., 1998. "Monte Carlo evaluation model of an undeveloped oil field," Journal of Energy Finance & Development, Elsevier, vol. 3(1), pages 73-84.
    3. Thomas E. Copeland & Vladimir Antikarov, 2005. "Real Options: Meeting the Georgetown Challange," Journal of Applied Corporate Finance, Morgan Stanley, vol. 17(2), pages 32-51.
    4. Schwartz, Eduardo S & Moon, Mark, 2001. "Rational Pricing of Internet Companies Revisited," The Financial Review, Eastern Finance Association, vol. 36(4), pages 7-25, November.
    5. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    6. Alex Triantis & Adam Borison, 2001. "Real Options: State Of The Practice," Journal of Applied Corporate Finance, Morgan Stanley, vol. 14(2), pages 8-24.
    7. Alexander J. Triantis, 2000. "Real Options And Corporate Risk Management," Journal of Applied Corporate Finance, Morgan Stanley, vol. 13(2), pages 64-73.
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