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Summary Mindmaps Option Techniques (Y55127) $3.21
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Summary Mindmaps Option Techniques (Y55127)

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All lectures of module 2 of risk management (option techniques) summarized into mindmaps.

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  • May 30, 2022
  • 9
  • 2020/2021
  • Summary
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‎PV of project's FCF = S = stock price


‎project assets = X = strike price


‎length of time the decision may be deferred
‎Real Options
‎= t = time to expiration


‎time value of money = Rf = risk-free rate


‎riskiness of project assets = stdev = stdev of
‎returns


‎Option to time the investment
‎= right to postpone


‎Option to expand
‎= right to grow
‎Real Options in Investments
‎Option to quit a project
‎= abandon


‎Option to replace one project with another
‎= replacement option


‎Important for large capital intensive projects
‎Option to quit a project I‎. Opt
‎projects involving new products where
‎= put option
‎Inves
‎acceptance is uncertain

‎Options as a Concept of
‎ ermporary-Stop or Shutdown Options
T
‎Decision Making
‎= right to temporary reduce production


‎Intensity or Operating Scale Options
‎= right to change production time or rate


‎Option to Expand
‎Real Option types
‎= call option


‎Option to Contract
‎= put option

, ‎Stage 1: implement in a few locations


‎Stage 2: use locations and redesign
‎workflows
‎invest in stages

‎Stage 3: full implementation


‎this reduces the uncertainty ‎Investing in Infrastructure

‎Pilot projects with abandoning/delaying
‎options can overcome objections by
‎management



‎payoff is in terms of future projects
‎firms that invest a lot in R&D
‎expenditure may end up as sunk cost


‎amount spent on the R&D is the
‎cost of the call option
‎real option application
‎projects/products that might emerge from
r‎ esearch provide the payoffs on the options
‎Real L
‎Research expenditures should provide much
‎higher value for firms that are in volatile
‎technologies or businesses
‎implications
‎ he value of research and the optimal
T
‎amount to be spent on research will change
‎over time as businesses mature


‎"R&D is always an option"
‎TRUE OR FALSE

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