Author: James D. Shilling
Publisher:
ISBN:
Category : Options (Finance)
Languages : en
Pages : 21

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Author: Der-Ann Hsu
Publisher:
ISBN:
Category : Option (Contract)
Languages : en
Pages : 20

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Author: Joseph T. L. Ooi
Publisher:
ISBN:
Category :
Languages : en
Pages : 19

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Book Description
Option theory offers a useful way of modeling land value under uncertainty. While this approach underlies much theoretical analysis, the unanswered question is, to what extent does the market value of land reflect this option value? This paper exploits a unique natural experiment to obtain the first direct estimates of the option value of land based on observed transactions. Comparing land sold under constraints that strip away real options to land sold in the same market without such restrictions, we find that approximately 45% of the market value of developable land represents the value of these embedded real options.

Author: Rutger-Jan Lange
Publisher:
ISBN:
Category : Cities and towns
Languages : en
Pages : 0

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"Classic real options theory rests on two debatable assumptions: projects require a fixed investment and generate cash flows that follow a random walk. Relaxing both assumptions leads to radically different conclusions regarding the optimal timing of investment. We model investment using a Stone-Geary production function (Leontief and Cobb-Douglas are special cases) and growth as a mean-reverting Brownian motion. The solution method for this option valuation problem is non-trivial because the state space is two dimensional (level of the cash flow and its growth). For Leontief, the optimal policy is intuitive; the moment of investment involves a trade-off between the level of the cash ow and its growth. For Cobb-Douglas, in contrast, the optimal moment of investment depends only on the growth. More surprisingly, investment should be delayed when growth is high. This conclusion persists in the general Stone-Geary case. Applied to urban real estate, this suggests that up to 20% of cities should delay new construction because of high growth. The option value of vacant land may represent 60% of the value of new construction. High prices of vacant land may thus result from rational investor behavior rather than regulatory inefficiency. Our analysis should be widely applicable, for example to investment in high-growth companies."--Abstract.

Author: Rutger-Jan Lange
Publisher:
ISBN:
Category : Cities and towns
Languages : en
Pages : 59

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Book Description
Classic real options theory rests on two debatable assumptions: projects require a fixed investment and generate cash flows that follow a random walk. Relaxing both assumptions leads to radically different conclusions regarding the optimal timing of investment. We model investment using a Stone-Geary production function (Leontief and Cobb-Douglas are special cases) and growth as a mean-reverting Brownian motion. The solution method for this option valuation problem is non-trivial because the state space is two dimensional (level of the cash flow and its growth). For Leontief, the optimal policy is intuitive; the moment of investment involves a trade-off between the level of the cash ow and its growth. For Cobb-Douglas, in contrast, the optimal moment of investment depends only on the growth. More surprisingly, investment should be delayed when growth is high. This conclusion persists in the general Stone-Geary case. Applied to urban real estate, this suggests that up to 20% of cities should delay new construction because of high growth. The option value of vacant land may represent 60% of the value of new construction. High prices of vacant land may thus result from rational investor behavior rather than regulatory inefficiency. Our analysis should be widely applicable, for example to investment in high-growth companies.

Author: Robert J. Gloudemans
Publisher:
ISBN: 9780883291665
Category : Real property
Languages : en
Pages : 428

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Author: James J. Alleman
Publisher: Springer Science & Business Media
ISBN: 0585333149
Category : Business & Economics
Languages : en
Pages : 274

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Randall B, Lowe Piper & Marbury, L.L.R The issue of costing and pricing in the telecommunications industry has been hotly debated for the last twenty years. Indeed, we are still wrestling today over the cost of the local exchange for access by interexchange and competitive local ex change carriers, as well as for universal service funding. The U.S. telecommunications world was a simple one before the emergence of competition, comprising only AT&T and independent local exchange carriers. Costs were allocated between intrastate and interstate jurisdictions and then again, between intrastate local and toll. The Bell System then divided those costs among itself (using a process referred to as the division of revenues) and independents (using a process called settlements). Tolls subsidized local calls to keep the politi cians happy, and the firm, as a whole, covered its costs and made a fair return. State regulators, however, lacked the wherewithal to audit this process. Their con cerns centered generally on whether local rates, irrespective of costs, were at a po litically acceptable level. Although federal regulators were better able to determine the reasonableness of the process and the resulting costs, they adopted an approach of "continuous surveillance" where, like the state regulator, the appearance of rea sonableness was what mattered. With the advent of competition, this historical costing predicate had to change. The Bell System, as well as the independents, were suddenly held accountable.

Author:
Publisher:
ISBN:
Category : Finance
Languages : en
Pages : 576

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Author: Marion A. Brach
Publisher: John Wiley & Sons
ISBN: 0471445568
Category : Business & Economics
Languages : en
Pages : 384

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Book Description
Explores real option theory applied in practice Real options are quickly becoming the valuation and decision-making method of choice for many companies, including oil and gas companies, utilities and natural resource companies, pharmaceutical and biotech companies, Internet companies, and many others. Real Options in Practice allows readers to view the world of real options from the vantage point of a corporate practitioner applying real option valuation techniques on a regular basis. Expert Marion Brach describes the challenges of implementing a real option framework in practice within a corporate setting. Touching on the real options most firms care about, Real Options in Practice identifies the classic types of real options-deferral, abandonment, switching, expansion, and compound-and explores the main concepts critical to understanding real option theory. Through Brach's own three-step real option valuation method readers will learn how the theory of real options is now being applied to drive better, more profitable corporate decision-making. Marion A. Brach, MD, MBA (Hagen, Germany), has undertaken financial valuation of business opportunities and acquisitions using scenario and real option valuation in the biotech industry. A recognized expert on real option theory and practice, Brach received her MBA from the Manchester Business School and frequently speaks at real option seminars.

Author: Prasad Kodukula
Publisher: J. Ross Publishing
ISBN: 9781932159431
Category : Business & Economics
Languages : en
Pages : 256

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Book Description
Business leaders are frequently faced with investment decisions on new and ongoing projects. The challenge lies in deciding what projects to choose, expand, contract, defer, or abandon, and which method of valuation to use is the key tool in the process. This title presents a step-by-step, practical approach to real options valuation to make it easily understandable by practitioners as well as senior management. This systematic approach to project valuation helps you minimize upfront investment risks, exercise flexibility in decision making, and maximize the returns. Whereas the traditional decision tools such as discounted cash flow/net present value (DCF/NPV) analysis assume a “fixed” path ahead, real options analysis offers more flexible strategies. Considered one of the greatest innovations of modern finance, the real options approach is based on Nobel-prize winning work by three MIT economists, Fischer Black, Robert Merton, and Myron Scholes.