Real Options Analysis Course: Business Cases and Software Applications

Johnathan Mun9780471430018, 9780471465348, 0471430013

Praise for Real Options Analysis Course”Dr. Mun’s latest book is a logical extension of the theory and application presented in Real Options Analysis. More specifically, the Real Options Analysis Course presents numerous real options examples and provides the reader with step-by-step problem-solving techniques. After having read the book, readers will better understand the underlying theory and the opportunities for applying real option theory in corporate decision-making.-Chris D. Treharne, President, Gibraltar Business Appraisals, Inc.This text provides an excellent follow up to Dr. Mun’s first book, Real Options Analysis. The cases in Real Options Analysis Course provide numerous examples of how the use of real options and the Real Options Analysis Toolkit software can assist in the valuation of strategic and managerial flexibility in a variety of arenas.-Charles T. Hardy, PhD, Chief Financial Officer & Director of Business Development, Panorama Research, Inc.Most of us come to real options from the perspective of our own areas of expertise. Mun’s great skill with this book is in making real options analysis understandable, relevant, and immediately applicable to the field within which you are working.-Robert Fourt, Partner, Gerald Eve (UK)”Mun provides a practical step-by-step guide to applying simulation and real options analysis-invaluable to those of us who are no longer satisfied with conventional valuation approaches alone.-Fred Kohli, Head of Portfolio Management, Syngenta Crop Protection Ltd. (Switzerland)”

---

Table of contents :
Real Options
Analysis Course……Page 5
Copyright……Page 6
Preface……Page 7
About the Author……Page 9
Contents……Page 11
Installing Crystal Ball Monte Carlo
Simulation Software……Page 17
Installing Real Options Analysis Toolkit Software……Page 24
Getting Started with Crystal Ball Software……Page 31
Getting Started with Real Options Analysis
Toolkit Software……Page 38
CHAPTER 3
Framing Real Options……Page 55
Step 1: Qualify List of Projects and Strategies……Page 56
Step 2: Forecast Base-Case Variables for Each Project……Page 57
Step 3: Create Static DCF Models for Each Case……Page 58
Step 4: Monte Carlo Simulation—DCF Outputs Become
Real Options Inputs……Page 59
Step 5: Framing the Real Options……Page 62
Step 6: Options Analytics, Simulation,
and Optimization……Page 70
Step 7: Reports, Presentations, and Update Analysis……Page 71
FINANCIAL ANALYSIS……Page 73
MONTE CARLO SIMULATION……Page 77
VOLATILITY ESTIMATES……Page 80
BINOMIAL LATTICES……Page 89
GRANULARITIES IN LATTICES……Page 93
State-Pricing Approach to Solving a European Option……Page 104
TRINOMIAL LATTICES AND AMERICAN OPTIONS……Page 106
OPTION TO ABANDON……Page 111
OPTION TO EXPAND……Page 121
OPTION TO CONTRACT……Page 133
OPTION TO CHOOSE……Page 142
COMPOUND OPTIONS……Page 152
CLOSED- FORM COMPOUND OPTIONS……Page 160
SEQUENTIAL COMPOUND OPTION……Page 164
CHANGING COSTS……Page 170
CHANGING VOLATILITY……Page 174
OPTION TO CONTRACT AND ABANDON……Page 178
BASIC BLACK- SCHOLES WITH DIVIDENDS……Page 183
BARRIER OPTIONS……Page 187
STOCHASTIC TIMING OPTIONS……Page 191
SWITCHING OPTION……Page 194
Closed-Form Equations and Binomial Convergence……Page 199
NONRECOMBINING LATTICES……Page 205
CHAPTER 7
Extended Problems: Combining Forecasting, DCF Modeling,
Real Options, and Optimization……Page 217
CHAPTER 8
Exercise Solutions……Page 229
CHAPTER 9
Real Options Analysis Toolkit Software Function
Description for Excel……Page 255
REAL OPTIONS VALUE TABLES……Page 267
IMPLIED VOLATILITY TABLES……Page 282
DIVIDEND IMPACT TABLES……Page 288
More, Faster, Cheaper—The Siren Call
of Upstream R&D……Page 297
Real Options Analysis Applied to Valuing
Start-Up Entities: The Digital News, Inc…….Page 300
Index……Page 311