Pricing of Multiple Exercisable Real Options
Abstract
A general framework for valuing multiple exercisable real options is proposed in this study, where an expansion option must be exercised before an abandonment option. the Binomial Tree Pricing Model (BTPM), which was originally derived for pricing financial options, is used to value multiple real options embedded in an investment opportunity and account for the interactions among them. the proposed methodology is designed to overcome the inflexibility of the more traditionally used Discounted Cash Flow (DCF) method, thus providing a better alternative for capital budgeting and project planning. the results show that BTPM is effective in determining the collective value of multiple options and identifying the exercise boundary of each option. Copyright© (2009) by the American Society for Engineering Management.
Recommended Citation
Y. Meng and Z. Liu, "Pricing of Multiple Exercisable Real Options," 30th Annual National Conference of the American Society for Engineering Management 2009, ASEM 2009, pp. 574 - 581, American Society of Engineering Management, Dec 2009.
Department(s)
Engineering Management and Systems Engineering
Keywords and Phrases
Binomial tree pricing model; Interactions; Multiple exercisable real options
International Standard Book Number (ISBN)
978-161738105-8
Document Type
Article - Conference proceedings
Document Version
Citation
File Type
text
Language(s)
English
Rights
© 2024 American Society for Engineering Management, All rights reserved.
Publication Date
01 Dec 2009
