• Proceedings of the Korea Technology Innovation Society Conference
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• 2002.05b
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• pp.181-198
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• 2002

This article describes a methodology for evaluating huge aerospace R&D investments using the real options pricing method. Option pricing has been proposed as a useful approach for modeling investment in R&D. Two important features of R&D investments are that an R&D project takes time to complete and that the outcome of R&D investments is highly uncertain. This makes the analysis of R&D investments difficult. Traditional tools for project evaluation, like IRR or the NPV, are inadequate for coping with the high uncertainty. Hence, In this article I propose a log-transformed binomal lattice method, and it will show that option pricing might be an adequate framework for evaluating such types of aerospace investments.

• 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).

• Proceedings of the Korea Technology Innovation Society Conference
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• 2001.11a
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• pp.307-337
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• 2001

In this paper, we propose the valuation frame of the IT(Information Technology) ventures using ROV(Real Options Valuation) model. Generally, ROV can comprises the traditional valuation method such as DCF(Discounted Cash Flow), which can measure only the tangible value of a firm from the expected future earnings, in that ROV can additionally measure the intangible value such as the strategic value of a firm in the uncertain environment. We set up the hypothetic IT venture future investment plan and assume that there are a growth option and a switching option consequently along the investment time horizon, which are caused by each characteristics of ventures and IT technologies, especially modularity. In the case that there are several embedded real options in the firm's investment plan in a row, we should apply the compound option pricing model as a real option valuation model in order to consider the value interaction between real options. In an addition, we present the results of optimal investment timing analysis using real options approach and compare them. with those of the original assumed investment timing.

• Clean Technology
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• v.29 no.1
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• pp.59-70
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• 2023

This study aims to introduce a biowaste processing system that uses spent coffee grounds and implement a real options method to evaluate the proposed process. Energy systems based on eco-friendly fuels lack sufficient data, and thus along with conventional approaches, they lack the techno-economic assessment required for great input qualities. On the other hand, real options analysis can estimate the different costs of options, such as continuing or abandoning a project, by considering uncertainties, which can lead to better decision-making. This study investigated the feasibility of a biowaste processing method using spent coffee grounds to produce biofuel and considered three different valuation models, which were the net present value using discounted cash flow, the Black-Scholes and binomial models. The suggested biowaste processing system consumes 200 kg/h of spent coffee grounds. The system utilizes a tilted-slide pyrolysis reactor integrated with a heat exchanger to warm the air, a combustor to generate a primary heat source, and a series of condensers to harness the biofuel. The result of the net present value is South Korean Won (KRW) -225 million, the result of the binomial model is KRW 172 million, and the result of the Black-Scholes model is KRW 1,301 million. These results reveal that a spent coffee ground-related biowaste processing system is worthy of investment from a real options valuation perspective.

• Journal of the Korean Operations Research and Management Science Society
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• v.26 no.4
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• pp.83-97
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• 2001

Net Present Value (NPV) criterion has been the most widely used criterion to evaluate investment opportunities. However, the analysis based on the NPV criterion falls to consider the managerial flexibility of deferring decisions until major uncertainty is resolved. Recently, real options method attracted a lot of attention as a Powerful approach to address the problem. If investment decision is deferred, the value of the investment opportunity increases but opportunity cost increases at the same time. Therefore, it is important to decide the optimal timing how long the decision can be deferred. In this paper, we developed a model deciding the optimal decision timing. Using the real options approach, the model derived the optimal deferring time until a decision is made. Then, the model was applied to a Korean mobile telecommunications company who wants to invest on the wireless resale business. We believe that this model would be very useful to overcome the problem of NPV decision criterion. With this approach, we can make contingent decisions based on the observation of uncertainly resolutions.

• Journal of Korea Game Society
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• v.14 no.4
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• pp.67-74
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• 2014

Real options valuation models are now proved as a effective valuation method both in Theoretically and empirically. However, to use real options model for early stage start-ups, additional non-financial information is crucial in the valuation process. Previous studies theoretically suggested the modified real options valuation model and process to use non-financial information in the valuation of early stage startups, but there is no empirical evidence on the suggested model. Therefore, this study investigated the effectiveness of the modified real options valuation model using a case study. The case study result showed that the modified real options valuation effectively reflect the non-financial information in early stage startups, and decrease the forecasting error in the valuation process.

• Proceedings of the Korean Operations and Management Science Society Conference
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• 2003.05a
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• pp.620-627
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• 2003

The real option pricing theory has emerged as the new investment decision-making techniques superceding the traditional discounted cash flow techniques and thus has greatly received muck attention from academics and practitioners in these days the theory has been widely applied to a variety of corporate strategic projects such as a new drug R&D, an internet start-up. an advanced manufacturing system. and so on A lot of people who are interested in the real option pricing theory complain that it is difficult to understand the true meaning of the real option value. though. One of the most conspicuous reasons for the complaint may be due to the fact that there exit many different ways to calculate the real options value in this paper, we will present a replicating portfolio method. a risk-neutral probability method. a risk-adjusted discount rate method (quasi capital asset pricing method). and an opportunity cost concept-based method under the conditions of a binomial lattice option pricing theory.

• Journal of Korean Institute of Industrial Engineers
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• v.40 no.2
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• pp.195-204
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• 2014

The transition from fossil to renewable energy is inevitable due to fossil depletion. So, Renewable energy is very important for energy security and economic growth although it's R&D is long-term and high risky project. We propose new valuation method which combined system dynamics and compound real option method for long-term and high risk projects such as renewable energy. This method can show dynamic valuation results for the complex causal interaction and be easy for Monte-Carlo simulation to estimate volatility. And it can reflect the value of flexible decision for uncertainty. We applied the empirical analysis for Korea's photovoltaic industry by using this method. As results by empirical analysis, photovoltaic's R&D has high valuation using this method compared by traditional valuation methods such as DCF.

• Journal of Construction Engineering and Project Management
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• v.3 no.1
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• pp.10-13
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• 2013

Determining on a particular construction method is typically decided in the initial phases of a project. However, changing conditions during actual construction may require a different method or technology to be employed. Providing an option for project managers to change construction provides flexibility that can increase value to the overall project. This research provides the ability to modify construction methods as a real option, which allows its value to be modeled. The research also formalizes a way to integrate a binomial lattice model with the Earned Value Method's S-curve. The integrated model provides a decision support tool that planners can use to determine whether to exercise the option depending on the status metrics provided by EVM.

• International conference on construction engineering and project management
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• 2013.01a
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• pp.129-132
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• 2013

Determining on a particular construction method is typically decided in the initial phases of a project. However, changing conditions during actual construction may require a different method or technology to be employed. Providing an option for project managers to change construction provides flexibility that can increase value to the overall project. This research provides the ability to modify construction methods as a real option, which allows its value to be modeled. The research also formalizes a way to integrate a binomial lattice model with the Earned Value Method's S-curve. The integrated model provides a decision support tool that planners can use to determine whether to exercise the option depending on the status metrics provided by EVM.