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Slides FV L3 - EWMBA 201A Economic Analysis for Click...

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Click to edit Master subtitle style 9/16/09 EWMBA 201A Economic Analysis for Business Decisions Lecture 3: The Value of Information August 24-25, 2009 Felix Várdy
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9/16/09 Overview Pasta jar auction Introductions HBS Case: Freemark Abbey Winery Value of Info & Real Options
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9/16/09 Freemark Abbey Winery Decision tree Optimal Decisions Reputational cost low; intermediate; high. Risk neutral; risk averse. Value of perfect weather forecast
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9/16/09 Options & the Value of Info Call option: Right to buy stock at today’s price (say) at specified point in the future. Derives value from ability to make contingent decision whether to buy. Or, equivalently, from the extra information you will have at that decision point. Value of Option = Value of extra Information Assumes strike price is today’s stock price
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9/16/09 Options & the Value of Info Real option: The opportunity to postpone an investment decision to later point.
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