Real Options in Capital Investment

This compilation integrates various new contributions to the growing real options literature. Recent developments in the valuation of capital investment opportunities seen as real options (e.g. to defer, expand, abandon, or switch) have provided the tools and unlocked the possibilities to revolutionize the field of capital budgeting. The resulting insights, strategies, and techniques enable quantifying the thus far elusive elements of managerial operating flexibility and strategic interactions. These are vital to successfully capitalize on favorable future investment opportunities or limit losses from adverse market developments. This book presents various models and operating strategies, and a variety of applications ranging from acquisitions and divestitures, to natural resource development and pollution compliance. It is intended for both the academic and the professional market.

The book's contributions are divided into five parts, covering sections on real options and alternative valuation paradigms for capital investment analysis; on the analysis of general exchange or switching options, and interdependencies among multiple such options; on strategic acquisitions, infrastructure, and foreign investment options; on mean reversion/ alternative formulations in natural resource investments, shipping, and start-up ventures; and on other applications in pollution compliance, land development, flexible manufacturing, and financial default options. Both academic and practitioner interest in these developments is unusually high. The book can serve as supplementary material for the academic market, e.g., in advanced finance courses in option pricing or capital budgeting, in doctoral seminars, and as a library resource. It may also be of interest to the professional market (e.g. corporate planners and finance executives in the oil, pharmaceutical, auto and a variety of other industries), academics from related areas (e.g. decision analysts or economists), as well as to international readers (academics, doctoral students, and professionals).

LENOS TRIGEORGIS is currently Associate Professor of Finance at the University of Cyprus. After receiving his MBA (MSIA) from Purdue University and Ph.D. from Harvard University (where he has also been a Research Assistant), he taught at the University of Massachusetts, the International University of Japan, and at Boston University. He has been published widely in numerous journals, such as the Journal of Financial and Quantitative Analysis, Journal of Conflict Resolution, European Journal of Operational Research, Advances in Futures and Options Research, Journal of Economics and Business, International Journal of Finance, Managerial Finance, The Financial Review, Financial Management, Financial Accountability and Management, Journal of Applied Corporate Finance, Midland Corporate Finance Journal and elsewhere. He is currently preparing two other books.