Talk:Real options analysis

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Um ... what is this? Should it be at Real options? -- Zoe

23:36, 21 November 2006 (UTC)

I agree this article is confusing and it's hard to know even where to start to change it. I'll try when I have some time. Links to other derivatives pages would certainly help.

above question:property) whose subtitles would be (film), (play), (book), (other). And please notice the online dictionary I referred to. Really, I don't think this is much ado about nothing. Did you read Eats, Shoots and Leaves? There are language sticklers out there. I don't think that Wikipedia wants to be the only encyclopedia to promote its use. JohnClarknew 16:44, 23 November 2006 (UTC)

You're mistaken - it is not my book, I believe the author is Treogonis (sp?). Please look at the links on the main article page. They should convince you that the concept is real (btw it is not a type of financial option, nor is it a type of contract written on real estate, it refers to choices that occur in non-financial (aka "real") investments) Smallbones 21:34, 25 November 2006 (UTC)

I agree this article is very confusing. Much remains to be changed. I will modify it when i'll time. First, per definition, real options is the application of the (financial) option pricing theory to real investment situations. As a consequence, real options can and should be used for capital budgeting. Second, the difference between real options and NPV is not clearlx explained. NPV assumes that a once-undertaken project has typical cash flow stream: the basic principle of NPV is to determine expected cash flows and discount them as a discount rate which takes into consideration the risk inherent to the cash flow. Real Options is about determining certainty equivalent cash flows (by constructing a risk-free portfolio) and discounting them at the risk free-rate. Very good textbooks on real options, refer to either Dixit and Pindyck (1994), Investment under Uncertainty, Princeton University Press or Lenos Trigeorgis (1996), Real Options, MIT Press

[edit] Real options analysis / Real options theory / Strategic options

There seem to be several names for the same subject area, probably because it derives from several different fields.

This field allows inclusion of the net present value (NPV) of future management decisions (the real options) as a correction to traditional discounted cash flow methods.

There are several widely documented real options with general applicability (e.g. to manufacturing):
- abandonment
- timing (i.e. deferral/advance)
- acceleration or growth
- flexibility (switch, contract, outsource, etc.)

These may have applicability in hi-tech projects^[1], or R&D fields:
- stage
-

[edit] Headline text

[edit] copyright violations

I removed a lot of copyvio content from http://www-935.ibm.com/services/uk/igs/pdf/esr-calculating-value-during-uncertainty.pdf. I think I got it all, but other users might want to check for more. Calliopejen1 09:19, 25 July 2007 (UTC)