• Korean Journal of Construction Engineering and Management
• /
• v.17 no.1
• /
• pp.76-82
• /
• 2016

Decision-making in construction projects often include options features. Such embedded options are difficult to value properly and many decision makers do not have experience in option analysis. The purpose of this paper is to demonstrate how real option analysis can be used to value capital expenditures on construction materials. We propose a real option framework to evaluate decision-making processes involving the purchase of construction materials. A case study was conducted by evaluating the purchase decision-making of solar cells, a good with high price volatility. Using real option analysis two strategies to improve the financial feasibility of installing a solar panel system were derived. The first strategy involves using a price cap that gives the project manager the right, but not obligation, to buy the modules for a predefined price during the next year. The second strategy is to defer the purchase of the solar cells until future price information becomes clearer. Both of the strategies in the case study were valued using the binominal model. This study will help to improve the financial feasibility of purchasing construction materials with high price volatility by including the value of managerial flexibility.

• Journal of Advanced Navigation Technology
• /
• v.15 no.1
• /
• pp.104-111
• /
• 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 the Korean Society for Railway
• /
• v.10 no.2 s.39
• /
• pp.137-145
• /
• 2007

In traditional financial theory, the discount cash flow model(DCF or NPV) operates as the basic framework for most analyses. In doing valuation analysis, the conventional view is that the net present value(NPV) of a project is the measure of the present value of expected net cash flows. Thus, investing in a positive(negative) NPV project will increase(decrease) firm value. Recently, this framework has come under some fire for failing to consider the options of the managerial flexibilities. Real option valuation(ROV) considers the managerial flexibility to make ongoing decisions regarding the implementation of investment projects and the deployment of real assets. The appeal of the framework is natural given the high degree of uncertainty that firms face in their technology investment decisions. This paper suggests an algorithm for estimating volatility of logarithmic cash flow returns of real assets based on the Black-Sholes option pricing model, the binomial option pricing model, and the Monte Carlo simulation. This paper uses those models to obtain point estimates of real option value with the G7- HSR350X(high-speed train).

• Proceedings of the Korea Technology Innovation Society Conference
• /
• 2000.11a
• /
• pp.259-277
• /
• 2000

In this paper, we suggest theoretical grounds on the problem of R&D portfolio with different option premiums utilizing the Real Options Model, which has received intensified attention as the method of assessment of R&D project with high risk. Even though there have been many studies focused on the evaluation of option value of single project from technology valuation's perspective. there are few study on the portfolio of multiple technology investment by option value using. This paper bears practical importance by showing simple examples with the option value of investment alternatives and the valuation of related risk, the construction of optimum portfolio in technology investment alternatives.

• Korean Management Science Review
• /
• v.31 no.3
• /
• pp.95-111
• /
• 2014

It is essential to carry out an economic analysis on public water supply projects so that policy makers and water enterprises are aware of the actual value of the project. However, many popular approaches based on discounted cash flow analysis do not capture the uncertainties inherent in cash flow. In order to analyze the economic values of the water supply project of local governments, we utilize real option model, which considers uncertainty in future water price behavior and captures the value of real life flexibility. The real option model is designed to incorporate the option to expand and abandon, and it is applied to a local government case. Furthermore, we assess the project by exploring Luehrman's option space to accommodate the more efficient decision making. The results show that substantial amount of potential value is included in the public water supply service, and the overall value is greater than the value obtained from the discounted cash flow model.

• Journal of Hydrogen and New Energy
• /
• v.25 no.3
• /
• pp.319-335
• /
• 2014

This study attempts to suggest an economic analysis model for SNG projects, which can reflect the future uncertainty objectively and applies the real option valuation incorporating the flexible investment decision. Based on this analysis model, net present value and internal rate of return were estimated by using preliminary feasibility study report of SNG project. And economic evaluation of SNG project was performed with real option valuation using binomial option model. Through this, the difference of analysis results between the real option valuation model and the discounted cash flow model were compared and the usefulness of the real option valuation model was confirmed. From the actual proof analysis, it is confirmed that the real option valuation model showed higher SNG project value than the discounted cash flow model did. It was confirmed that by applying the real option valuation model, economic analysis can be performed on not only the current straightforward SNG project, but also various future portfolios having options such as expansion, modification, or decommission.

• Korean Management Science Review
• /
• v.31 no.1
• /
• pp.17-26
• /
• 2014

This study presents a new real estate value analysis model considering the changes in the population structure. We propose a new model that takes advantage of the binomial option model one of the techniques of real options and considers the changes in the population structure. The real estate market price data of Seoul city from year 2001 to 2012 were extracted and the correlation analysis between real estate prices and changes in the population structure was performed. The result shows that they have positive correlation with one year time lag. The coefficient between the real estate prices and demographic changes was estimated using the OLS analysis and included in the traditional binomial option model to calculate the value of the property. It is assumed for the future price prediction that real estate invested in Seoul in January, 2013 will be sold within five years. Analysis result shows that the values of real estate in September of 2013 were predicted as 583.5 million won in the new model and as 582.4 million won in the traditional model. This reflects that the new model considering the change of population change gives better realistic performance than the traditional one.

• Asia-Pacific Journal of Business
• /
• v.15 no.3
• /
• pp.325-349
• /
• 2024

Purpose - This study aims to identify and document earnings management, sources of investment growth, and CEO personality traits as three determinants of difference in the value-earnings convexity. Design/methodology/approach - To test our hypotheses, we run cross-sectional regressions based on the Fama and Macbeth (1973) procedure using US firm-year observations from 1968 to 2017. Findings - First, we show that the value-earnings association decreases with accruals and real earnings management. Second, we demonstrate that the value-earnings convexity is weaker when investment growth is supported by off-balance-sheet intangible assets relative to on-balance-sheet tangible and intangible assets. Finally, we find that extraverted CEOs and CEOs who are more open to experience are better at exploiting the growth opportunities implied by the current accounting profitability. Conscientious and neurotic personality traits of CEOs make no difference in exploiting the growth opportunities that the current accounting profitability suggests. Research implications or Originality - This study complements and extends the literature on real options and behavioral agency by demonstrating that the value-earnings convexity depends not only on accounting profitability and investment growth rate, but also on earnings management, sources of investment growth, and CEO personality traits.

• Asian Journal of Innovation and Policy
• /
• v.5 no.2
• /
• pp.197-207
• /
• 2016

This paper seeks to measure the monetary value of technical development in the deep seabed manganese nodule mining by applying the compound option model (COM). The COM is appropriate for the project in terms of its decision-making structure and embedded uncertainty. The estimation results show that the deep seabed mining project has more economic potential than shown by the previously obtained results from the discounted cash flow (DCF) analysis. In addition, it is reasonable to invest in the project taking the various uncertainty factors into consideration, because the ratio of the value to the cost of the project is far higher than one. This information can be utilized in national ocean policy decision-making.

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