Real Options and Business Strategy

APPLICATIONS TO DECISION-MAKING

Edited by Lenos Trigeorgis

B O O K S
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Introductory overview © Financial Engineering Ltd, 1999

This compilation © Financial Engineering Ltd, 1999

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 Contents

Authors vii

Introduction xv
Lenos Trigeorgis

1 Project Evaluation, Strategy and Real Options 1

Alberto Micalizzi and Lenos Trigeorgis

2 Growth Options, Competition and Strategy: 21

An Answer to the Market Valuation Puzzle?
Han T.J. Smit and Lenos Trigeorgis

3 Creating and Managing Shareholder Value: 39

A View Through a Real Options Lens
Alexander J. Triantis

4 Applications in Real Options and Value-based Strategy 59

Justin Pettit

5 The Flexibility for Discontinuing Product Development 85

and Market Expansion: The Glaxo Wellcome Case
Alberto Micalizzi

6 A Business Shift Approach to R&D Option Valuation 117

Onno Lint and Enrico Pennings

7 Airline Long-Term Planning Under Uncertainty: 135

The Benefits of Asset Flexibility Created Through Product
Commonality and Manufacturer Lead Time Reductions
John Stonier

8 Real Option Valuation for E-Business: A Case Study 161

Richard Chatwin, Yann Bonduelle, Anne Goodchild,
Franchee Harmon and João Mazzuco

9 Using Real Options to Frame the IT Investment Problem 185

Nalin Kulatilaka, P. Balasubramanian and John Storck

10 Software Design as an Investment Activity:

A Real Options Perspective 215
Kevin Sullivan, Prasad Chalasani, Somesh Jha and Vibha Sazawal

11 The Valuation of Natural Resources 263

Gonzalo Cortazar

v
REAL OPTIONS AND BUSINESS STRATEGY

12 Learning and Exercising Options to Reduce Capital 279

Project Risk
Larry Chorn and Peter Carr

13 The Value of Market Research When a Firm is Learning: 295

Real Option Pricing and Optimal Filtering
David Epstein, Nick Mayor, Philipp Schönbucher,
Elizabeth Whalley and Paul Wilmott

14 Valuing the Operational Flexibility of a Multinational 321

Enterprise (with Implications for Investment Location
and Capacity Choice Decisions)
Arun S. Muralidhar

A Note on Bibliographical Evolution of Real Options 357

Marco Antônio Guimarães Dias

Index 363

vi