opt1 - SREN BRUUN PETER BASON REAL OPTIONS APPROACHES IN...

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REAL OPTIONS APPROACHES IN VENTURE CAPITAL FINANCE SØREN BRUUN PETER BASON A Review Executive Summary Real options as a tool grew out of a pressing need for better investment criteria, as well as advances in the techniques for option pricing. This essay attempts to offer a survey of literature in the field of real options, specifically of the literature that deals with the areas of venture capital and research and development projects. with improvements in the specification and modeling of parameters to suit the in the field are of an incremental nature. The good news is, models are generally quite applicable, and the state of the science of real options valuation tools in this field is encouraging. Table of Contents ................................ 1 The Cry for Help ...................................................................................................... 1 Black-Scholes to the Rescue .................................................................................. 2 Models ................................................................................................................. 3 Lessons from financial options ....................................................................... 3 Distributional Assumptions and Parameter Estimation .................................. 4 Interest Rate Sensitivities ............................................................................... 4 Competition and Market Imperfection ............................................................. 4 Jump models ................................................................................................... 5 Models with Two State Variables ................................................................... 6 DCF and Modern Capital Budgeting Methods ................................................ 6 Discussions ......................................................................................................... 7 References .............................................................................................................. 7 ESSAY SERIES 10-05-2001 Essay Eight Søren Bruun Petersen int+ 45 86 12 88 85 bruun@realoptions.dk Peter Christopher Bason int+ 45 28 73 19 72 bason@realoptions.dk
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- 1 - SØREN BRUUN PETER BASON While options as a concept has existed for decades, analytic rigor in their pricing (1973). This is also the starting point for the techniques for the valuation of real options. In the essay at hand, an attempt is made towards clarifying the academic lineage of the predominant valuation techniques, and identifying the strands of research that make up the current real options landscape. This is
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This note was uploaded on 01/29/2012 for the course FIN 6000 taught by Professor Banko during the Fall '11 term at University of Florida.

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opt1 - SREN BRUUN PETER BASON REAL OPTIONS APPROACHES IN...

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