Analysis of generation y workforce motivation using multiattribute utility theory ian n. Real option strategic decision trees analysis compiled by ted fu july 1, 2002 adapted from. As for the options analysis, the results of potential involvement of various option types such as sequential options approach are used in the valuation of a case from turkish automotive industry. Monte carlo simulation, real options analysis, knowledge. Applied analytics quantitative research methods9781515273677, faith journey9781515212362, quantitative research methods using risk simulator and rov bizstats software9781734497311, project economics analysis tool peat9781734481181, readings in certified quantitative risk management. A real options analysis of landfill mining projects. Since standard roa draws from contingentclaims analysis based on nancial options, a key feature speci c to real assets is often ignored namely, the interplay or strategic interactions taking place among real option holders. Real options analysis and the assumptions of the npv rule1 tom arnold assistant professor of finance e. Johnathan mun has 50 books on goodreads with 161 ratings. The book was released on may 2010 and covers four software applications. Robert pindyck mit lectures on real options part i august, 2008 2 44. Hester application of real options theory to dod software acquisitions capt albert olagbemiro, usafr, jonathan mun, and mantak shing i issue 57 january 2011 vol. The value added through optimal decision making merging decision analysis with the wellknown principles used in valuing options on financially traded assets can be further enhanced by applying an intuitive approach based on familiar concepts from the field of decision analysis. Bhusana premanode suranaree university of technology.
Portfolio management decision support tools analysis relating. An american option allows you buy or sell the stock at any date between the present and the exercise date. Applied analytics quantitative research methods9781515273677, faith journey9781515212362, quantitative research methods using risk simulator and rov bizstats software9781734497311, project economics analysis tool peat9781734481181, readings in certified quantitative risk management cqrm9781734481105, applied analytical. It strikes a superb balance between solid intuition, rigorous analysis, and numerous practical examples. Following the discussion in sections 2 real option analysis in aircraft investment, 3 case study. Options analysis, stochastic forecasting, and portfolio optimization. Real options are a complement to, not a substitute for, discounted cash flow analysis. It characterized the possibilities of applying real options in decision planning and the ways of. Tools andtechniques forvaluing strategic investments and decisions. Finally, there is a book that equips professionals to easily recognize, value, and seize real options in the world around them. Jul 06, 2010 in the second edition of analyzing and modeling risk, expert dr. Mun demystifies real options analysis and delivers a powerful, pragmatic guide for decisionmakers and practitioners alike.
The objective probability the market will go up is 20%. Tools and techniques for valuing strategic investments and decisions find, read and cite all the research you. Robert pindyck mit lectures on real options part i august, 2008 18 44 changes in the initial price again. Real options analysis third edition real options valuation. Real options analysis tools and techniques for valuing strategic. In the second edition of analyzing and modeling risk, expert dr. Johnathan mun, is the founder and ceo of real options valuation, inc. It shows how these different methodologies are used in concert with one another in a comprehensive and integrated risk analysis and risk management paradigm. The effect of private and public risks on oilfield asset. Framework for analyzing modular, adaptable, and flexible. A real option itself, is the rightbut not the obligationto undertake certain business initiatives, such as deferring, abandoning, expanding, staging, or contracting a capital investment project.
Tools and techniques for valuing strategic investment and decisions, 2nd edition mun, johnathan on. Real options can also value the ability to abandon the project if it is unsuccessful an exit option. Real options analysis allows the firm to determine how much this safety downside. Books by johnathan mun author of real options analysis. May 02, 2020 real options analysis roa is a term in finance that primarily applies to an option to craft, dump, inflate or minimize a capital investment. Pdf on may 7, 2015, johnathan mun and others published a primer on return on investment. Prior to starting his own firm, he was the vice president of analytics at decisioneering, inc. The appropriate riskadjusted rate of return cost of capital is 25%. The cases in the real options analysis course provide numerous examples of how the use of real options and the real options toolkit software can assist in the valuation of strategic and managerial flexibility in a variety of arenas, with many practical and useful examples. This is because numerical real options analysis draws heavily on analogies with financial instruments. Sep 20, 2002 mun demystifies real options analysis and delivers a powerful, pragmatic guide for decisionmakers and practitioners alike. Portfolio management decision support tools analysis relating to management value metrics christopher j. Risk simulator, real options super lattice solver, modeling toolkit, and employee stock options valuation toolkit. Johnathan mun provides uptodate coverage of risk analysis as it is applied within the realms of business risk analysis and offers an intuitive feel of what risk looks like, as well as the different ways of quantifying it.
Potential impact of open architecture on aegis using kva and. Osl risk management is part of the organisers of the european convention in quantitative methods and risk management euriskconvention, which is a 5. The main objective of multicriteria analysis is to solve. Johnathan mun certainly has earned the reputation of being an expert on the subject consultants, analysts, decisionmakers and engineers will be all over this. These problems include both technical problems, concerning valuation of. But the less your real option looks like a financial instrument, the harder it is to value.
To compute the projects static npv, carrier x first uses the binomialtree model to obtain the distribution of yield, which is denoted f i, t and given in fig. Johnathan mun, phd, is currently the ceo of real options valuation, inc. A tutorial on using excel and excel addins to value real. In figure 4, the forecasting worksheet uses a sample proj ects historical revenues to forecast. Potential impact of open architecture on aegis using kva.
Real options analysis and the assumptions of the npv rule1. To pick the best growth projects, managers need to use the two methods in tandem. Morton glantz, johnathan mun, in credit engineering for bankers second. In order to present the real options theories better the author described. He has consulted for many fortune 500 firms from 3m, airbus, and boeing to ge and motorola and the government department of defense, state and federal agencies on risk analysis. The present value pv of future discounted expected cash flows is either 3000 if the market goes up or 500 if the market goes down next year. Real options analysis has become a key management tool for many of todays businesses. Osl risk management brings to the united kingdom and europe the certified in quantitative risk management cqrm in a joint venture with the international institute of professional education and research iiper and real option valuation inc. Johnathan mun is the softwares creator and teaches the risk analysis, real options for analysts, risk analysis for managers, crm, and other courses. A primer on applying monte carlo simulation, real options. Indeed, sometimes real options have an exact value that npv will never give you.
Semantic scholar extracted view of real options analysis versus traditional dcf valuation in layman s terms dr by. Watch a full introduction of the 4day intensive integrated risk analysis training, complete the requisite inclass work in risk identification, modelling and simulation, integrated risk management process, analytical tools, optimization, forecasting, real options analysis, and obtain the fullyaccredited certified in quantitative risk management cqrm designation offered by. Through chapters on fundamental analysis and credit administration, authors morton glantz and johnathan mun teach readers how to improve their credit skills and develop logical decisionmaking processes. Oct 03, 2002 real options are a useful tool to guide a firms strategic planning, and can create or enhance a firms value. Real option strategic decision trees analysis compiled by ted fu july 1, 2002 adapted from luenberger. Modeling risk third edition real options valuation. Naval postgraduate school california and the university of applied sciences switzerland. The process of roa can assist in leaving investment options open, thereby enabling the investor to explore other potentially riskier possibilities. It is an accurate method for estimating the value of corporate investments, and it can be effectively utilized in situations where management has flexibility in large capital budget decisions with high uncertainty. Remember, though, that real options are not just about getting a number. Protectourcoastline your search result for johnathan mun. In response to borisons article, tom copeland and vladimir antikarov argued that these two components can be evaluated in a single analysis that uses both dcf to calculate the value of the underlying asset and monte carlo simulation to estimate the volatility of the underlying, thereby expanding the range of real options applications. Mun is a research professor at the us naval postgraduate. Heres an approach that not only makes the math of options easier but also helps you make better decisions about exercising them.
Far from being a replacement for dcf analysis, real options are essential complement, and a projects total value should encompass both. Real options reasoning ror is a conceptual approach to strategic investment that takes into account the value of preserving the right to make future choices under uncertain conditions. Potential impact of open architecture on aegis using kva and real options analysis by thomas housel and jonathan mun get pdf 715 kb. Real options are not just about getting a number, they also provide a useful framework for strategic decision making. Portfolio management decision support tools analysis. The rigour of thinking about strategic decisions as real options can help you make better.
A north sea oil company has had much wellpublicised success valuing. Real options valuation, also often termed real options analysis, rov or roa applies option valuation techniques to capital budgeting decisions. Applying monte carlo risk simulation, strategic real options. The effect of private and public risks on oilfield. Real options are a useful tool to guide a firms strategic planning, and can create or enhance a firms value. It is the right but not the obligation to acquire the gross present value of expected cash flows by making an irreversible investment on or before the date the opportunity ceases to be available. Real options analysis versus traditional dcf valuation in layman. Naval postgraduate school monterey, ca and teaches executive seminars in quantitative risk analysis, decision sciences, real options, simulation, portfolio optimization, and other related concepts. Jan 02, 2012 johnathan mun, phd, is currently the ceo of real options valuation, inc. The use of real options in strategic decision making. International financial management opportunities to alter input and output prices fluctuate with exchange rate changes. He received his phd in finance and economics from lehigh university.
Tools and techniques for valuing strategic investments and decisions, new york, john wiley and sons, 2002. This paper analyzes the localization project, first with conventional npv analysis, then with real options analysis and finally compares the results. Assistant professor of finance ford motor company teaching fellow. The valuation of localization investments with real. Pdf a primer on return on investment and real options for. With offices in north america, europe, australia, and asia, wiley is globally committed to developing and marketing print and electronic products and services for our customers professional and personal knowledge and understanding. Feb 17, 2006 mun demystifies real options analysis and delivers a powerful, pragmatic guide for decisionmakers and practitioners alike. Expiration date european or american form basic options call option put option financial options real options complex options contingencies option created by some earlier action interdependencies options with interdependent values 2000. Real options analysis an overview sciencedirect topics.
Real options analysis roa is a term in finance that primarily applies to an option to craft, dump, inflate or minimize a capital investment. Real options analysis provides a revolutionary approach to evaluating and valuing capital investment strategies by taking into consideration the real options inherent in the strategic decisionmaking process. Johnathan mun real options analysis tools and techniques for valuing strategic investments and decisions 30. Potential impact of open architecture on aegis using kva and real options analysis. Multicriteria analysis mca 9 establishes preferences between options by reference to an explicit set of objectives that the decisionmaking body has identified, and for which it has established measurable criteria to assess the extent to which the objectives have been achieved 10. As readers acquire new abilities to calculate risks.
We go on to demonstrate the power of realoption valuation as compared with traditional npv analysis. Real option analysis example 1 a company is considering investing in a project. The valuation of localization investments with real options. Johnathan mun is the author of real options analysis 3. Johnathan muns most popular book is real options analysis.
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