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Stock Market Valuation with Real Options:: lessons from Netscape


  • Buckley, Adrian
  • Tse, Kalun
  • Rijken, Herbert
  • Eijgenhuijsen, Hans


Discounted cash flow is the main tool for valuing projects and companies. Real options techniques can augment valuation. The case of Netscape is used to demonstrate this. We begin with a defensive cash flow scenario. On top of this, we superimpose a number of real options valuations. Some experts would dispute our methodology because it is not built upon market-priced risk. Nonetheless, it provides an approximate valuation. We prefer equity valuation using various methodologies, including real options where appropriate, to arrive at a range of value. But we cannot, using financial logic, justify the high Netscape flotation price.

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  • Buckley, Adrian & Tse, Kalun & Rijken, Herbert & Eijgenhuijsen, Hans, 2002. "Stock Market Valuation with Real Options:: lessons from Netscape," European Management Journal, Elsevier, vol. 20(5), pages 512-526, October.
  • Handle: RePEc:eee:eurman:v:20:y:2002:i:5:p:512-526

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    References listed on IDEAS

    1. Eric von Hippel, 1994. ""Sticky Information" and the Locus of Problem Solving: Implications for Innovation," Management Science, INFORMS, vol. 40(4), pages 429-439, April.
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    Cited by:

    1. K. Maris & K. Nikolopoulos & K. Giannelos & V. Assimakopoulos, 2007. "Options trading driven by volatility directional accuracy," Applied Economics, Taylor & Francis Journals, vol. 39(2), pages 253-260.
    2. Bird, R. & Menzies, G. & Dixon, P. & Rimmer, M., 2011. "The economic costs of US stock mispricing," Journal of Policy Modeling, Elsevier, vol. 33(4), pages 552-567, July.
    3. Ulrich Pape & Stephan Schmidt-Tank, 2005. "Valuing Joint Ventures Using Real Options," Finance 0503030, EconWPA.

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    Stock market valuation Real options Volatility Competitive advantage period;


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