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Real options valuation, the Glossary

Real options valuation, also often termed real options analysis,Adam Borison (Stanford University).^[1]

135 relations: American Economic Association, American Economic Review, Analogy, Annual International Conference on Real Options, Arbitrage, Arbitrage pricing theory, Aswath Damodaran, Auburn University, Avinash Dixit, Balance sheet, Binomial options pricing model, Black–Scholes model, Business school, Call option, Capital asset pricing model, Capital budgeting, Cash flow, Closed-form expression, Columbia University, Complex system, Conceptual framework, Contingent claim, Contingent value rights, Corporate finance, Cost of capital, Credit Suisse First Boston, Cryptocurrency, Datar–Mathews method for real option valuation, Decision rule, Decision support system, Deep reinforcement learning, Derivative (finance), Determinism, Dimension, Discount window, Discounted cash flow, Dividend, Dow Jones & Company, Duke University, Economies of scale, Eduardo Schwartz, Electric utility, Engineering design process, Exercise (options), Expiration (options), Exponentiation, Financial statement analysis, Finite difference methods for option pricing, Flexible manufacturing system, Fuzzy pay-off method for real option valuation, ... Expand index (85 more) »
Capital budgeting
Real options

American Economic Association

The American Economic Association (AEA) is a learned society in the field of economics.

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American Economic Review

The American Economic Review is a monthly peer-reviewed academic journal first published by the American Economic Association in 1911.

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Analogy

Analogy is a comparison or correspondence between two things (or two groups of things) because of a third element that they are considered to share.

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Annual International Conference on Real Options

The Annual International Conference on Real Options: Theory Meets Practice is a yearly conference organized by the Real Options Group in cooperation with various top universities. Real options valuation and Annual International Conference on Real Options are real options.

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Arbitrage

In economics and finance, arbitrage is the practice of taking advantage of a difference in prices in two or more marketsstriking a combination of matching deals to capitalize on the difference, the profit being the difference between the market prices at which the unit is traded.

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Arbitrage pricing theory

In finance, arbitrage pricing theory (APT) is a multi-factor model for asset pricing which relates various macro-economic (systematic) risk variables to the pricing of financial assets.

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Aswath Damodaran

Aswath Damodaran (born 24 September 1957), is a Professor of Finance at the Stern School of Business at New York University (Kerschner Family Chair in Finance Education), where he teaches corporate finance and equity valuation.

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Auburn University

Auburn University (AU or Auburn) is a public land-grant research university in Auburn, Alabama.

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Avinash Dixit

Avinash Kamalakar Dixit (born 6 August 1944) is an Indian-American economist. Real options valuation and Avinash Dixit are real options.

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Balance sheet

In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business partnership, a corporation, private limited company or other organization such as government or not-for-profit entity.

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Binomial options pricing model

In finance, the binomial options pricing model (BOPM) provides a generalizable numerical method for the valuation of options. Real options valuation and binomial options pricing model are options (finance).

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Black–Scholes model

The Black–Scholes or Black–Scholes–Merton model is a mathematical model for the dynamics of a financial market containing derivative investment instruments. Real options valuation and Black–Scholes model are options (finance).

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Business school

A business school is a higher education institution or professional school that teaches courses leading to degrees in business administration or management.

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Call option

In finance, a call option, often simply labeled a "call", is a contract between the buyer and the seller of the call option to exchange a security at a set price. Real options valuation and call option are options (finance).

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Capital asset pricing model

In finance, the capital asset pricing model (CAPM) is a model used to determine a theoretically appropriate required rate of return of an asset, to make decisions about adding assets to a well-diversified portfolio.

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Capital budgeting

Capital budgeting in corporate finance, corporate planning and accounting is an area of capital management that concerns the planning process used to determine whether an organization's long term capital investments such as new machinery, replacement of machinery, new plants, new products, and research development projects are worth the funding of cash through the firm's capitalization structures (debt, equity or retained earnings). Real options valuation and capital budgeting are corporate finance.

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Cash flow

Cash flow, in general, refers to payments made into or out of a business, project, or financial product. Real options valuation and Cash flow are corporate finance.

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Closed-form expression

In mathematics, an expression is in closed form if it is formed with constants, variables and a finite set of basic functions connected by arithmetic operations (and integer powers) and function composition.

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Columbia University

Columbia University, officially Columbia University in the City of New York, is a private Ivy League research university in New York City.

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Complex system

A complex system is a system composed of many components which may interact with each other.

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Conceptual framework

A conceptual framework is an analytical tool with several variations and contexts.

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Contingent claim

In finance, a contingent claim is a derivative whose future payoff depends on the value of another “underlying” asset,Dale F. Gray, Robert C. Merton and Zvi Bodie.

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Contingent value rights

In corporate finance, Contingent Value Rights (CVR) are rights granted by an acquirer to a company’s shareholders, facilitating the transaction where some uncertainty is inherent. Real options valuation and Contingent value rights are corporate finance and real options.

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Corporate finance

Corporate finance is the area of finance that deals with the sources of funding, and the capital structure of businesses, the actions that managers take to increase the value of the firm to the shareholders, and the tools and analysis used to allocate financial resources.

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Cost of capital

In economics and accounting, the cost of capital is the cost of a company's funds (both debt and equity), or from an investor's point of view is "the required rate of return on a portfolio company's existing securities".

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Credit Suisse First Boston

Credit Suisse First Boston (also known as CSFB and CS First Boston) is the investment banking affiliate of Credit Suisse headquartered in New York.

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Cryptocurrency

A cryptocurrency, crypto-currency, or crypto is a digital currency designed to work as a medium of exchange through a computer network that is not reliant on any central authority, such as a government or bank, to uphold or maintain it.

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Datar–Mathews method for real option valuation

The Datar–Mathews Method (DM Method) is a method for real options valuation. Real options valuation and Datar–Mathews method for real option valuation are real options.

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Decision rule

In decision theory, a decision rule is a function which maps an observation to an appropriate action.

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Decision support system

A decision support system (DSS) is an information system that supports business or organizational decision-making activities.

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Deep reinforcement learning

Deep reinforcement learning (deep RL) is a subfield of machine learning that combines reinforcement learning (RL) and deep learning.

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Derivative (finance)

In finance, a derivative is a contract that derives its value from the performance of an underlying entity.

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Determinism

Determinism is the philosophical view that all events in the universe, including human decisions and actions, are causally inevitable.

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Dimension

In physics and mathematics, the dimension of a mathematical space (or object) is informally defined as the minimum number of coordinates needed to specify any point within it.

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Discount window

The discount window is an instrument of monetary policy (usually controlled by central banks) that allows eligible institutions to borrow money from the central bank, usually on a short-term basis, to meet temporary shortages of liquidity caused by internal or external disruptions.

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Discounted cash flow

The discounted cash flow (DCF) analysis, in financial analysis, is a method used to value a security, project, company, or asset, that incorporates the time value of money. Real options valuation and discounted cash flow are corporate finance.

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Dividend

A dividend is a distribution of profits by a corporation to its shareholders.

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Dow Jones & Company

Dow Jones & Company, Inc. (also known simply as Dow Jones) is an American publishing firm owned by News Corp and led by CEO Almar Latour.

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Duke University

Duke University is a private research university in Durham, North Carolina, United States.

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Economies of scale

In microeconomics, economies of scale are the cost advantages that enterprises obtain due to their scale of operation, and are typically measured by the amount of output produced per unit of time.

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Eduardo Schwartz

Eduardo Saul Schwartz (born 1940) is a professor of finance at SFU's Beedie School of Business, where he holds the Ryan Beedie Chair in Finance. Real options valuation and Eduardo Schwartz are real options.

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Electric utility

An electric utility, or a power company, is a company in the electric power industry (often a public utility) that engages in electricity generation and distribution of electricity for sale generally in a regulated market.

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Engineering design process

The engineering design process, also known as the engineering method, is a common series of steps that engineers use in creating functional products and processes.

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Exercise (options)

The owner of an option contract has the right to exercise it, and thus require that the financial transaction specified by the contract is to be carried out immediately between the two parties, whereupon the option contract is terminated. Real options valuation and exercise (options) are options (finance).

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Expiration (options)

In finance, the expiration date of an option contract (represented by Greek letter tau, τ) is the last date on which the holder of the option may exercise it according to its terms. Real options valuation and expiration (options) are options (finance).

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Exponentiation

In mathematics, exponentiation is an operation involving two numbers: the base and the exponent or power.

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Financial statement analysis

Financial statement analysis (or just financial analysis) is the process of reviewing and analyzing a company's financial statements to make better economic decisions to earn income in future.

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Finite difference methods for option pricing

Finite difference methods for option pricing are numerical methods used in mathematical finance for the valuation of options. Real options valuation and Finite difference methods for option pricing are options (finance).

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Flexible manufacturing system

A flexible manufacturing system (FMS) is a manufacturing system in which there is some amount of flexibility that allows the system to react in case of changes, whether predicted or unpredicted.

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Fuzzy pay-off method for real option valuation

The fuzzy pay-off method for real option valuation (FPOM or pay-off method) is a method for valuing real options, developed by Mikael Collan, Robert Fullér, and József Mezei; and published in 2009. Real options valuation and fuzzy pay-off method for real option valuation are real options.

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Harvard Business Publishing

Harvard Business Publishing (HBP) is a publisher founded in 1994 as a not-for-profit, independent corporation and an affiliate of Harvard Business School (distinct from Harvard University Press), with a focus on improving business management practices.

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Harvard Business Review

Harvard Business Review (HBR) is a general management magazine published by Harvard Business Publishing, a not-for-profit, independent corporation that is an affiliate of Harvard Business School.

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Harvard Business School

Harvard Business School (HBS) is the graduate business school of Harvard University, a private Ivy League research university.

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IESE Business School

IESE Business School is the graduate business school of the University of Navarra.

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Implied volatility

In financial mathematics, the implied volatility (IV) of an option contract is that value of the volatility of the underlying instrument which, when input in an option pricing model (usually Black–Scholes), will return a theoretical value equal to the price of the option.

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Institute for Business Value

The Institute for Business Value (IBV) a calibrated concept of IBM - is a business research organization that focuses on managerial and economic issues faced by companies and governments around the world.

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Intrinsic value (finance)

In finance, the intrinsic value of an asset or security is its ''value'' as calculated with regard to an inherent, objective measure.

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Investment

Investment is traditionally defined as the "commitment of resources to achieve later benefits".

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Investment Analysts Society of Southern Africa

The Investment Analyst's Society of Southern Africa (IAS, IASSA) is the liaison body for the financial analyst profession in South Africa.

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Irving Fisher

Irving Fisher (February 27, 1867 – April 29, 1947) was an American economist, statistician, inventor, eugenicist and progressive social campaigner.

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Journal of Applied Corporate Finance

The Journal of Applied Corporate Finance is a quarterly academic journal covering research in corporate finance, including risk management, corporate strategy, corporate governance, and capital structure.

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Journal of Financial Economics

The Journal of Financial Economics is a peer-reviewed academic journal published by Elsevier, covering the field of finance.

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Lattice model (finance)

In finance, a lattice model is a technique applied to the valuation of derivatives, where a discrete time model is required. Real options valuation and lattice model (finance) are options (finance).

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Least squares

The method of least squares is a parameter estimation method in regression analysis based on minimizing the sum of the squares of the residuals (a residual being the difference between an observed value and the fitted value provided by a model) made in the results of each individual equation.

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Legal fiction

A legal fiction is a construct used in the law where a thing is taken to be true, which is not in fact true, in order to achieve an outcome.

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Lenos Trigeorgis

Lenos Trigeorgis is the Bank of Cyprus Chair Professor of Finance in the School of Economics and Management, University of Cyprus. Real options valuation and Lenos Trigeorgis are real options.

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Machine learning

Machine learning (ML) is a field of study in artificial intelligence concerned with the development and study of statistical algorithms that can learn from data and generalize to unseen data and thus perform tasks without explicit instructions.

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Mainstream economics

Mainstream economics is the body of knowledge, theories, and models of economics, as taught by universities worldwide, that are generally accepted by economists as a basis for discussion.

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Manufacturing process management

Manufacturing process management (MPM) is a collection of technologies and methods used to define how products are to be manufactured.

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Margrabe's formula

In mathematical finance, Margrabe's formula is an option pricing formula applicable to an option to exchange one risky asset for another risky asset at maturity. Real options valuation and Margrabe's formula are options (finance).

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Market domination

Market dominance is the control of a economic market by a firm.

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Market liquidity

In business, economics or investment, market liquidity is a market's feature whereby an individual or firm can quickly purchase or sell an asset without causing a drastic change in the asset's price.

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Markov decision process

In mathematics, a Markov decision process (MDP) is a discrete-time stochastic control process.

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Master of Business Administration

A Master of Business Administration (MBA; also Master in Business Administration) is a postgraduate degree focused on business administration.

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Master of Finance

The Master of Finance is a master's degree awarded by universities or graduate schools preparing students for careers in finance.

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Mathematical optimization

Mathematical optimization (alternatively spelled optimisation) or mathematical programming is the selection of a best element, with regard to some criteria, from some set of available alternatives.

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Michael Brennan (finance)

Michael J. Brennan (born November 14, 1942) is emeritus professor of finance at the UCLA Anderson School of Management. Real options valuation and Michael Brennan (finance) are real options.

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Michael J. Mauboussin

Michael J. Mauboussin (born February 1964) heads consilient research at Morgan Stanley division Morgan Stanley Investment Management's Counterpoint Global, an open-end mutual fund. Real options valuation and Michael J. Mauboussin are real options.

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Mineral rights

Mineral rights are property rights to exploit an area for the minerals it harbors.

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MIT Sloan School of Management

The Sloan School of Management at Massachusetts Institute of Technology (branded as MIT Sloan or Sloan) is the business school of the Massachusetts Institute of Technology, a private university in Cambridge, Massachusetts.

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Moneyness

In finance, moneyness is the relative position of the current price (or future price) of an underlying asset (e.g., a stock) with respect to the strike price of a derivative, most commonly a call option or a put option. Real options valuation and moneyness are options (finance).

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Monte Carlo method

Monte Carlo methods, or Monte Carlo experiments, are a broad class of computational algorithms that rely on repeated random sampling to obtain numerical results.

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Monte Carlo methods in finance

Monte Carlo methods are used in corporate finance and mathematical finance to value and analyze (complex) instruments, portfolios and investments by simulating the various sources of uncertainty affecting their value, and then determining the distribution of their value over the range of resultant outcomes.

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Natural resource

Natural resources are resources that are drawn from nature and used with few modifications.

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Net present value

The net present value (NPV) or net present worth (NPW) is a way of measuring the value of an asset that has cashflow by adding up the present value of all the future cash flows that asset will generate. Real options valuation and net present value are capital budgeting.

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New York University Stern School of Business

The Leonard N. Stern School of Business (also NYU Stern, Stern School of Business, or simply Stern) is the business school of New York University, a private research university based in New York City.

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Nobel Prize

The Nobel Prizes (Nobelpriset; Nobelprisen) are five separate prizes awarded to those who, during the preceding year, have conferred the greatest benefit to humankind, as established by the 1895 will of Swedish chemist, engineer, and industrialist Alfred Nobel, in the year before he died.

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Opportunity cost

In microeconomic theory, the opportunity cost of a choice is the value of the best alternative forgone where, given limited resources, a choice needs to be made between several mutually exclusive alternatives.

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Option (filmmaking)

In the film industry, an option agreement is a contract that "rents" the rights to a source material to a potential film producer. Real options valuation and option (filmmaking) are real options.

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Option (finance)

In finance, an option is a contract which conveys to its owner, the holder, the right, but not the obligation, to buy or sell a specific quantity of an underlying asset or instrument at a specified strike price on or before a specified date, depending on the style of the option. Real options valuation and option (finance) are options (finance).

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Option contract

An option contract, or simply option, is defined as "a promise which meets the requirements for the formation of a contract and limits the promisor's power to revoke an offer".

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Option style

In finance, the style or family of an option is the class into which the option falls, usually defined by the dates on which the option may be exercised. Real options valuation and option style are options (finance).

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Option time value

In finance, the time value (TV) (extrinsic or instrumental value) of an option is the premium a rational investor would pay over its current exercise value (intrinsic value), based on the probability it will increase in value before expiry. Real options valuation and option time value are options (finance).

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Partial differential equation

In mathematics, a partial differential equation (PDE) is an equation which computes a function between various partial derivatives of a multivariable function.

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Patent

A patent is a type of intellectual property that gives its owner the legal right to exclude others from making, using, or selling an invention for a limited period of time in exchange for publishing an enabling disclosure of the invention.

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Pontifical Catholic University of Rio de Janeiro

The Pontifical Catholic University of Rio de Janeiro (Pontifícia Universidade Católica do Rio de Janeiro; PUC-Rio) is a Jesuit, Catholic, pontifical university in Rio de Janeiro, Brazil.

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Postgraduate education

Postgraduate education, graduate education, or graduate school consists of academic or professional degrees, certificates, diplomas, or other qualifications usually pursued by post-secondary students who have earned an undergraduate (bachelor's) degree.

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Present value

In economics and finance, present value (PV), also known as present discounted value, is the value of an expected income stream determined as of the date of valuation.

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Present value of growth opportunities

In corporate finance, the present value of growth opportunities (PVGO) is a valuation measure applied to growth stocks. Real options valuation and present value of growth opportunities are corporate finance.

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Proxy (statistics)

In statistics, a proxy or proxy variable is a variable that is not in itself directly relevant, but that serves in place of an unobservable or immeasurable variable.

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Put option

In finance, a put or put option is a derivative instrument in financial markets that gives the holder (i.e. the purchaser of the put option) the right to sell an asset (the underlying), at a specified price (the ''strike''), by (or on) a specified date (the expiry or ''maturity'') to the writer (i.e. Real options valuation and put option are options (finance).

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Rainbow option

Rainbow option is a derivative exposed to two or more sources of uncertainty, as opposed to a simple option that is exposed to one source of uncertainty, such as the price of underlying asset. Real options valuation and Rainbow option are options (finance).

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Real options valuation

Real options valuation, also often termed real options analysis,Adam Borison (Stanford University). Real options valuation and real options valuation are capital budgeting, corporate finance, options (finance) and real options.

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Research and development

Research and development (R&D or R+D; also known in Europe as research and technological development or RTD) is the set of innovative activities undertaken by corporations or governments in developing new services or products and carrier science computer marketplace e-commerce, copy center and service maintenance troubleshooting software, hardware improving existing ones.

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Residual value

Residual value is one of the constituents of a leasing calculus or operation.

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Risk aversion

In economics and finance, risk aversion is the tendency of people to prefer outcomes with low uncertainty to those outcomes with high uncertainty, even if the average outcome of the latter is equal to or higher in monetary value than the more certain outcome.

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Risk premium

A risk premium is a measure of excess return that is required by an individual to compensate being subjected to an increased level of risk.

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Risk-adjusted net present value

In finance, risk-adjusted net present value (rNPV) or expected net existing value (eNPV) is a method to value risky future cash flows.

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Risk-neutral measure

In mathematical finance, a risk-neutral measure (also called an equilibrium measure, or equivalent martingale measure) is a probability measure such that each share price is exactly equal to the discounted expectation of the share price under this measure.

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Robert C. Merton

Robert Cox Merton (born July 31, 1944) is an American economist, Nobel Memorial Prize in Economic Sciences laureate, and professor at the MIT Sloan School of Management, known for his pioneering contributions to continuous-time finance, especially the first continuous-time option pricing model, the Black–Scholes–Merton model.

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Robert Pindyck

Robert Stephen Pindyck (born January 5, 1945) is an American economist, Bank of Tokyo-Mitsubishi Professor of Economics and Finance at Sloan School of Management at Massachusetts Institute of Technology. Real options valuation and Robert Pindyck are real options.

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Robust optimization

Robust optimization is a field of mathematical optimization theory that deals with optimization problems in which a certain measure of robustness is sought against uncertainty that can be represented as deterministic variability in the value of the parameters of the problem itself and/or its solution.

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Sequence

In mathematics, a sequence is an enumerated collection of objects in which repetitions are allowed and order matters.

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Series and parallel circuits

Two-terminal components and electrical networks can be connected in series or parallel.

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Spot contract

In finance, a spot contract, spot transaction, or simply spot, is a contract of buying or selling a commodity, security or currency for immediate settlement (payment and delivery) on the spot date, which is normally two business days after the trade date.

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Stanford University

Stanford University (officially Leland Stanford Junior University) is a private research university in Stanford, California.

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State prices

In financial economics, a state-price security, also called an Arrow–Debreu security (from its origins in the Arrow–Debreu model), a pure security, or a primitive security is a contract that agrees to pay one unit of a numeraire (a currency or a commodity) if a particular state occurs at a particular time in the future and pays zero numeraire in all the other states.

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Stewart Myers

Stewart Clay Myers is the Robert C. Merton Professor of Financial Economics at the MIT Sloan School of Management. Real options valuation and Stewart Myers are real options.

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Stochastic programming

In the field of mathematical optimization, stochastic programming is a framework for modeling optimization problems that involve uncertainty.

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Stock valuation

Stock valuation is the method of calculating theoretical values of companies and their stocks.

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Strategic management

In the field of management, strategic management involves the formulation and implementation of the major goals and initiatives taken by an organization's managers on behalf of stakeholders, based on consideration of resources and an assessment of the internal and external environments in which the organization operates.

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Strike price

In finance, the strike price (or exercise price) of an option is a fixed price at which the owner of the option can buy (in the case of a call), or sell (in the case of a put), the underlying security or commodity. Real options valuation and strike price are options (finance).

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References

[1] https://en.wikipedia.org/wiki/Real_options_valuation

Also known as Intensity option, Option to abandon, Option to contract, Option to expand, Real Options, Real Options Analysis, Real option, Switching option, Termination option.

, Harvard Business Publishing, Harvard Business Review, Harvard Business School, IESE Business School, Implied volatility, Institute for Business Value, Intrinsic value (finance), Investment, Investment Analysts Society of Southern Africa, Irving Fisher, Journal of Applied Corporate Finance, Journal of Financial Economics, Lattice model (finance), Least squares, Legal fiction, Lenos Trigeorgis, Machine learning, Mainstream economics, Manufacturing process management, Margrabe's formula, Market domination, Market liquidity, Markov decision process, Master of Business Administration, Master of Finance, Mathematical optimization, Michael Brennan (finance), Michael J. Mauboussin, Mineral rights, MIT Sloan School of Management, Moneyness, Monte Carlo method, Monte Carlo methods in finance, Natural resource, Net present value, New York University Stern School of Business, Nobel Prize, Opportunity cost, Option (filmmaking), Option (finance), Option contract, Option style, Option time value, Partial differential equation, Patent, Pontifical Catholic University of Rio de Janeiro, Postgraduate education, Present value, Present value of growth opportunities, Proxy (statistics), Put option, Rainbow option, Real options valuation, Research and development, Residual value, Risk aversion, Risk premium, Risk-adjusted net present value, Risk-neutral measure, Robert C. Merton, Robert Pindyck, Robust optimization, Sequence, Series and parallel circuits, Spot contract, Stanford University, State prices, Stewart Myers, Stochastic programming, Stock valuation, Strategic management, Strike price, The Journal of Business, The Wall Street Journal, Timothy Luehrman, Trade-off, University of Cape Town, University of Navarra, Valuation (finance), Valuation of options, Volatility (finance), Volume risk, Weighted average cost of capital, Wharton School Press, Wiley (publisher).

Real options valuation, the Glossary

Table of Contents

See also

Capital budgeting

Real options

References