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References in periodicals archive ?
Real options valuation methods have been developed and analyzed (Borison, 2005; Brealey & Meyers, 2000; Dixit & Pindyck, 1994; Kulatilaka, 1995; Lander, 1997; Lander & Pinches, 1998; McDonald, 2006; Quigg, 1993; Teisberg, 1995; Trigeorgis, 1993, 1995, 2005) and used to value strategies in many domains, including specific aspects of product development (Amram & Kulatilaka, 1999a; Brennan & Trigeorgis, 2000; Dixit & Pindyck, 1994; Kemna, 1993; Miller & Lessard, 2000; Trigeorgis, 1995).
Among all three solution methods, the most useful tool for solving real options valuation problems is the simulation approach.
Real options valuation and financial option pricing models are superior for higher-risk assets, assets with uncertain valuation inputs, and/ or assets that have significant incompatible decision options.
Collana, Fuller and Mezei (2009) present the new method of real options valuation using fuzzy numbers, which is easier to understand and less complex than the previous theories of valuation.
Fuzzy real options valuation for oil investments, Technological and Economic Development of Economy 15(4): 646-669.
How does the real options valuation model yield a different result from that of NPV?
In case of higher uncertainty, the optionality of the investment grows and it would make sense to use Real Options Valuation as an additional insight.
The traditional real options valuation methodology, when enhanced and properly formulated around a proposed or existing software investment employing the spiral development approach, provides a framework for guiding software acquisition decision making by highlighting the strategic importance of managerial flexibility in managing risk and balancing a customer's requirements within cost and schedule constraints, This article discusses and describes how an integrated risk management framework, based on real options theory, could be used as an effective risk management tool to address the issue of requirements uncertainty as it relates to software acquisition and guide the software acquisition decision-making process.
Brach (2003) identified three fundamental differences between discounted cash flows methods and real options valuation methods.
Real options valuation has been applied in a variety of contexts, such as in natural resource investments, land development, leasing, flexible manufacturing, government subsidies and regulation, R&D, new ventures and acquisitions, foreign investment and strategy, and elsewhere.