• Journal of Korea Technology Innovation Society
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• v.8 no.1
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• pp.29-50
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• 2005

Real options provide a new and productive way to view corporate r&d investment decisions. DCF approach is well established and beloved of financial executives, but is known to systematically underestimate investment value under significant uncertainty. Though real options are not inherent in a r&d investment, they can be used to compute the investment value including managerial flexibility like option value. In this paper, we explain how the interval of option value in black-scholes model can be estimated using simulation. We also present a process framework for interval estimation of volatility and efficient of period of investment value. In such a setting, we can obtain the appropriate interval estimation of the expanded investment value.

• Journal of the Korea Academia-Industrial cooperation Society
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• v.4 no.3
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• pp.289-295
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• 2003

In this paper, the option valuation of venture business was calculated by utilizing growth option model, chosen from real option valuation method. The evaluation of venture business was estimated by adding option value to the terminal value discounted from cashflow method. As the result of the empirical analysis, ROV model applied in the Study is more reliable Han the DCF model concerning the pricing of venture business. Unlike the previous study of Schartz & Moon which only analyzed one venture business, this study estimated and analyzed the rational pricing of venture business with comparative methods using various parameters of sampling 99 domestic venture businesses.

• Environmental and Resource Economics Review
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• v.13 no.4
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• pp.735-761
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• 2004

As a possible alternative to Traditional Discounted Cash Flow Method, "Option Pricing Model" has drawn academic attentions for the last a few decades. However, it has failed to replace traditional DCF method practically due to its mathematical complexity. This paper introduces an option pricing valuation model specifically adjusted for the natural resource development projects. We add market information and industry-specific features into the model so that the model remains objective as well as realistic after the adjustment. The following two features of natural resource development projects take central parts in model construction; product price is a unique source of cash flow's uncertainty, and the projects have cost structure from capital-intense industry, in which initial capital cost takes most part of total cost during the projects. To improve the adaptability of Option Pricing Model specifically to the natural resource development projects, we use Two-Factor Model and Long-term Asset Model for the analysis. Although the model introduced in this paper is still simple and reflects limited reality, we expect an improvement in applicability of option pricing method for the evaluation of natural resource development projects can be made through the process taken in this paper.

• Journal of Advanced Navigation Technology
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• v.15 no.1
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• pp.104-111
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• 2011

In this study, I have tried to analyze an influence of R&D investment on ROV(Real Option Value), corporate value and market value by analyzing R&D investment, ROV, corporate value and market value of machine and material industry in the perspective of ex post. As a result of this study, corporate value, which has been deduced by real option according to R&D investment, reflects market value well and possesses a strong correlation with R&D investment, ROV, corporate value and market value. This implication demonstrates this study result is corresponding with existing theories.

• Journal of Korea Technology Innovation Society
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• v.20 no.3
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• pp.732-753
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• 2017

Recently, when evaluating the technology values in the fields of biotechnology, pharmaceuticals and medicine, we have needed more to estimate those values in consideration of the period and cost for the commercialization to be put into in future. The existing discounted cash flow (DCF) method has limitations in that it can not consider consecutive investment or does not reflect the probabilistic property of commercialized input cost of technology-applied products. However, since the value of technology and investment should be considered as opportunity value and the information of decision-making for resource allocation should be taken into account, it is regarded desirable to apply the concept of real options, and in order to reflect the characteristics of business model for the target technology into the concept of volatility in terms of stock price which we usually apply to in evaluation of a firm's value, we need to consider 'the continuity of stock price (relatively minor change)' and 'positive condition'. Thus, as discussed in a lot of literature, it is necessary to investigate the relationship among volatility, underlying asset values, and cost of commercialization in the Black-Scholes model for estimating the technology value based on real options. This study is expected to provide more elaborated real options model, by mathematically deriving whether the ratio of the present value of the underlying asset to the present value of the commercialization cost, which reflects the uncertainty in the option pricing model (OPM), is divided into the "no action taken" (NAT) area under certain threshold conditions or not, and also presenting the estimation logic for option values according to the observation variables (or input values).

• Journal of Korean Society of Industrial and Systems Engineering
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• v.45 no.4
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• pp.21-30
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• 2022

To mitigate the environmental impacts of the energy sector, the government of South Korea has made a continuous effort to facilitate the development and commercialization of renewable energy. As a result, the efficiency of renewable energy plants is not a consideration in the potential site selection process. To contribute to the overall sustainability of this increasingly important sector, this study utilizes the Black-Scholes model to evaluate the economic value of potential sites for off-site wind farms, while analyzing the environmental mitigation of these potential sites in terms of carbon emission reduction. In order to incorporate the importance of flexibility and uncertainty factors in the evaluation process, this study has developed a site evaluation model focused on system dynamics and real option approaches that compares the expected revenue and expected cost during the life cycle of off-site wind farm sites. Using sensitivity analysis, this study further investigates two uncertainty factors (namely, investment cost and wind energy production) on the economic value and carbon emission reduction of potential wind farm locations.

• Asian Journal of Innovation and Policy
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• v.6 no.2
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• pp.225-244
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• 2017

When evaluating the economic value of technology or business project, we need to consider the period and cost for commercialization. Since the discounted cash flow (DCF) method has limitations in that it can not consider consecutive investment or does not reflect the probabilistic property of commercialization cost, we often take it desirable to apply the concept of real options with key metrics of underlying asset value, commercialization cost, and volatility, while regarding the value of technology and investment as the opportunity value. We at this moment provide more elaborated real options model with the effective region of volatility, which reflects the uncertainty in the option pricing model (OPM).

• Bulletin of the Korean Mathematical Society
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• v.48 no.4
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• pp.791-812
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• 2011

This is a survey on American options. An American option allows its owner the privilege of early exercise, whereas a European option can be exercised only at expiration. Because of this early exercise privilege American option pricing involves an optimal stopping problem; the price of an American option is given as a free boundary value problem associated with a Black-Scholes type partial differential equation. Up until now there is no simple closed-form solution to the problem, but there have been a variety of approaches which contribute to the understanding of the properties of the price and the early exercise boundary. These approaches typically provide numerical or approximate analytic methods to find the price and the boundary. Topics included in this survey are early approaches(trees, finite difference schemes, and quasi-analytic methods), an analytic method of lines and randomization, a homotopy method, analytic approximation of early exercise boundaries, Monte Carlo methods, and relatively recent topics such as model uncertainty, backward stochastic differential equations, and real options. We also provide open problems whose answers are expected to contribute to American option pricing.

• New & Renewable Energy
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• v.7 no.2
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• pp.18-27
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• 2011

Management flexibility to adapt its future actions in response to altered future market conditions can expand the value of an investment opportunity by improving its upside potential without the change in the downside losses. Module manufacturers in solar industry continuously have to decide how much and when its production capacity should be expanded with regards to the demand in the global markets. Either over- or under-investment can cause sunk and/or opportunity costs to the module manufacturers. Option of exercising the additional investments only on favorable opportunities can increase total value of the investment. This paper analyzes the case which shows that the expansion of production capacity with more expandibility can have more value than the rigid plan of capacity expansion. The expansion option value is equivalent to KRW 38.286 billion, thus switching the negative NPV of the initial investment opportunity into the positive value. High volatility and the high growth in the cashflows as the major business features of the renewable energy provide condition where real options can play the crucial role in increasing the investment value as well as in determining the size and timing of capacity expansion in the course of capital budgeting process.

• Journal of the Korea Academia-Industrial cooperation Society
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• v.12 no.7
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• pp.3016-3021
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• 2011

While there is ample information on the investment plans about Korea's selected new growth businesses, it is hard to find any analysis on the valuation of the projects. In this paper, I intend to do a valuation for the three particular technologies, which are solar cell, automotive battery, and bio-pharmaceutical, based on compound option model so that the valuation can capture not only the expected net cash flow but also the value originated from the flexibility of the decision maker. In addition, the real option pricing theory is reviewed and its practical limitations are thoroughly investigated.