Real Options: Managing Strategic Investment in an Uncertain World / Edition 1

by Martha Amram, Nalin Kulatilaka

Overview

In capital investing, as in life, you always have options. In today's extremely turbulent world, managers recognize how risky the most valuable investment opportunities often are, and how useful a flexible strategy can be. That's why they want to know all their options. Yet many current financial assessment tools fail to identify what investors can do to capitalize on future uncertain events. Martha Amram and Nalin Kulatilaka suggest a smarter new way to think about strategic investments in terms of real options. By applying options thinking—the concept behind the recent Nobel Prize-winning work on financial options—to the evaluation of nonfinancial assets, this innovative approach brings a financial market discipline to the evaluation of a company's opportunities. Using real options theory, managers can more effectively target crucial opportunities to redeploy, delay, modify, or even abandon capital-intensive projects as events unfold. Corporate executives in finances, investments, and project management should share this book with decision makers in information technology, strategic planning, corporate restructuring, venture capital, and law. Through timely case studies, the authors show managers how to use real options to evaluate investments and create exit strategies in R&D, product design, contracts, and information technology. By linking strategic vision and tactical project decisions, Real Options helps to improve capital investment planning and results.

Product Details

ISBN-13:	9780875848457
Publisher:	Oxford University Press
Publication date:	12/15/1998
Series:	Financial Management Association Survey and Synthesis
Edition description:	New Edition
Pages:	246
Product dimensions:	6.44(w) x 9.58(h) x 1.01(d)

About the Author

Martha Amram is the president of Glaze Creek Partners, a consulting firm in Palo Alto, California. She frequently speaks to senior management groups and has substantial experience in the use of the real options approach for the development of business strategy. Nalin Kulatilaka is a professor of finance at Boston University's School of Management, where he teaches primarily at the Executive MBA level. He has published widely on real options, risk management, and international finance, and has addressed executive audiences throughout the world on these topics.

Table of Contents

PrefacePART I: The Real Options Potential1. Introduction2. Uncertainty Creates Opportunities3. Option Valuation: The Nobel Prize - Winning Breakthrough4. From Wall Street to Main Street: Options on Real Assets5. Disciplined Strategy6. Quick LessonsPart II: The Real Options Solution Process7. The Four-Step Solution Process8. Calculating Option Values9. Adjusting for Leakage in ValuePart III: A Portfolio of Applications10. Valuing a Start-up11. Investing in a Start-up12. Exploring for Oil13. Developing a Drug14. Investing in Infrastructure15. Valuing Vacant Land16. Buying Flexibility17. Combining Real and Financial Flexibility18. Investing to Preempt Competitors19. Writing a LicensePart IV: Conclusion20. Changing the Questions We AskAppendix: A Quick Introduction to Discounted Cash Flow and the Estimation of VolatilityGuide to LiteratureNotesReferencesIndexAbout the Authors

Editorial Reviews

"Real Options is an exciting, accessible introduction to one of the most useful innovations of modern finance. Filled with lively examples from various industries, the book reveals the strategic power of real options in business planning."—David G. Luenberger, Professor of Engineering-Economic Systems and Operations Research, Stanford University, and author of Investment Science

"This new book by Martha Amram and Nalin Kulatilaka provides a much-needed treatment of real options theory aimed at the practitioner. It is comprehensive, highly readable, and replete with useful examples. Every corporate finance practitioner should have a copy of Real Options on hand. —Robert S. Pindyck, Mitsubishi Bank, Professor of Applied Economics, MIT Sloan School of Management, and coauthor of Investment Under Uncertainty

"Uncertainty is the greatest risk a manager faces—and provides the greatest opportunity for creating value. This book offers a way of thinking that helps managers balance the risks with potential payoffs when making decisions in an uncertain world. The real options approach is a simple yet potent method that great leaders—military, political, and economic—use implicitly. Real Options is an excellent introduction to these concepts and their applications."—James Wall, Treasurer and Controller, AirTouch Communications

From the Publisher