A model for determining whether a firm should exercise multiple real options individually or simultaneously
We develop a model for determining whether a firm should exercise two real options individually or simultaneously. The simultaneous exercise of both options has positive synergy, such as economies of scale, scope, and networks, while separate exercise of each option benefits from project flexibility. This tradeoff determines the optimal exercise policy. We investigate the static and dynamic management of multiple real options. A firm under static management determines the type of exercise of real options ex ante; on the other hand, a firm under dynamic management makes the decision at the time of exercise. The analysis reveals the gap between the two styles of managing. Most importantly, we highlight the advantage of dynamic management over static management, particularly for weakly correlated markets. We also explain empirical implications regarding a firm fs entry into several countries and regions in Asia.
|Date of creation:||Apr 2010|
|Date of revision:|
|Contact details of provider:|| Web page: http://www2.econ.osaka-u.ac.jp/library/global/e_HP/e_g_shiryo.html|
More information through EDIRC
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.:
- Boyle, Phelim P., 1988. "A Lattice Framework for Option Pricing with Two State Variables," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(01), pages 1-12, March.
- Bobtcheff, Catherine & Villeneuve, Stéphane, 2010.
"Technology choice under several uncertainty sources,"
European Journal of Operational Research,
Elsevier, vol. 206(3), pages 586-600, November.
- BOBTCHEFF Catherine & VILLENEUVE Stephane, 2006. "Irreversible Investment in Competitive Projects: A New Motive for Waiting to Invest," LERNA Working Papers 06.20.213, LERNA, University of Toulouse.
- Mark Broadie & Jérôme Detemple, 1997. "The Valuation of American Options on Multiple Assets," Mathematical Finance, Wiley Blackwell, vol. 7(3), pages 241-286.
- Bernardo, Antonio E. & Chowdhry, Bhagwan, 2002. "Resources, real options, and corporate strategy," Journal of Financial Economics, Elsevier, vol. 63(2), pages 211-234, February.
- Childs, Paul D. & Ott, Steven H. & Triantis, Alexander J., 1998. "Capital Budgeting for Interrelated Projects: A Real Options Approach," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 33(03), pages 305-334, September.
When requesting a correction, please mention this item's handle: RePEc:osk:wpaper:1012. 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: (Atsuko SUZUKI)
If references are entirely missing, you can add them using this form.