Open Access. Powered by Scholars. Published by Universities.®
Articles 1 - 2 of 2
Full-Text Articles in Business
Project Abandonment As A Put Option: Dealing With The Capital Investment Decision And Operating Risk Using Option Pricing Theory, John W. Kensinger
Project Abandonment As A Put Option: Dealing With The Capital Investment Decision And Operating Risk Using Option Pricing Theory, John W. Kensinger
Historical Working Papers
The possibility of liquidating assets used in a capital project are modeled as a "put" option in order to properly incorporate the qualities of the assets in the total valuation and assessment of risk in the project. Where assets can be diverted to other uses, abandonment of the project carries less risk than if the assets expired.
Budgeting Capital For R & D: An Application Of Option Pricing, John W. Kensinger
Budgeting Capital For R & D: An Application Of Option Pricing, John W. Kensinger
Historical Working Papers
This paper presents the insight that R&R investments are "natural" options, and examines the extent to which they can be valued using currently available option pricing models. The nature of the industrial research effort determines whether the appropriate model is based on a diffusion process or a jump process. The option model based on the former is sufficiently developed to satisfactorily deal with the direct benefits of R&D, while the model base on the latter presents several problems. Furthermore, indirect benefits are not captured in these models. These applications and shortcomings are examined in detail in the hope of not …