Kester, W.C.
(1984): Today’s Options for Tomorrow’s
Growth Harvard Business Review, no 62, March-April 1984, pp.153-160
The following papers selection, covers many important aspects of the
options thinking with focus in the firm's decisions. These papers are
both, classical and instructive papers. In this page, the papers are in
chronological order.
OBS: The links are not going to the comments yet (the addition of comments
is a planned future improvement)..
Kester, W.C.
(1984): Today’s Options for Tomorrow’s
Growth
Harvard Business Review, no 62, March-April 1984, pp.153-160
Brennan, M.J. &
E.S. Schwartz (1985): Evaluating Natural Resource
Investment
Journal of Business, vol.58, no 2, 1985, pp.135-157
McDonald, R. &
D. Siegel (1986): The Value of Waiting to Invest
Quarterly Journal of Economics, November 1986, pp.707-727
Majd, S. &
R.S. Pindyck (1987): Time to Build, Option Value,
and Investment Decisions
Journal of Financial Economics, no 18, 1987, pp.7-27
Paddock, J.L. &
D. R. Siegel & J. L. Smith (1988):
Option Valuation of Claims on Real Assets: The Case
of Offshore Petroleum Leases
Quarterly Journal of Economics, August 1988, pp.479-508
Dixit, A.K.
(1989): Entry and Exit Decisions under Uncertainty
Journal of Political Economy, vol.97, no3, pp.620-638
Majd, S. &
R.S. Pindyck (1989):
The Learning Curve and Optimal Production under
Uncertainty
Rand Journal of Economics, vol.20, no 3, Autumn 1989, pp.331-343
Pindyck, R.S.
(1991): Irreversibility, Uncertainty, and
Investment
Journal of Economic Literature, vol.29, September 1991, pp.1110-1148
Trigeorgis, L.
(1993a):
The Nature of Options Interactions and the
Valuation of Investments with Multiple Real Options
Journal of Financial and Quantitative Analysis, vol.28, no 1, March 1993,
pp.1-20
Pindyck, R.S.
(1993): Investments of Uncertain Cost
Journal of Financial Economics, vol. 34, August 1993, pp.53-76
Trigeorgis, L.
(1993b):
Real Options and Interactions with Financial
Flexibility
Financial Management, Autumn 1993, pp.202-224
Capozza, D. &
Y. Li (1994): The Intensity and Timing of
Investment: The Case of Land
American Economic Review, vol.84, no 4, September 1994, pp.889-904
Back to the Bibliographical Resources
Back to Contents (the main page)
Kester,
W.C. (1984): Today’s Options for Tomorrow’s Growth
.....
Back to Selected Bibliography
Brennan,
M.J. & E.S. Schwartz (1985): Evaluating Natural Resource
Investment
.....
Back to Selected Bibliography
McDonald,
R. & D. Siegel (1986): The Value of Waiting to Invest
.....
Back to Selected Bibliography
Majd, S. &
R.S. Pindyck (1987): Time to Build, Option Value, and Investment
Decisions
.....
Back to Selected Bibliography
Paddock,
J.L. & D. R. Siegel & J. L. Smith (1988):
Option Valuation of Claims on Real Assets: The Case of Offshore
Petroleum Leases
.....
Back to Selected Bibliography
Dixit, A.K.
(1989): Entry and Exit Decisions under Uncertainty
.....
Back to Selected Bibliography
Majd, S. &
R.S. Pindyck (1989):
The Learning Curve and Optimal Production under Uncertainty
.....
Back to the Selected Bibliography
Pindyck,
R.S. (1991): Irreversibility, Uncertainty, and Investment
.....
Back to Selected Bibliography
Trigeorgis, L. (1993):
The Nature of Options Interactions and the Valuation of Investments
with Multiple Real Options
.....
Back to Selected Bibliography
Pindyck,
R.S. (1993): Investments of Uncertain Cost
.....
Back to Selected Bibliography
Trigeorgis, L. (1993b): Real Options and Interactions with
Financial Flexibility
.....
Back to Selected Bibliography
Capozza, D.
& Y. Li (1994): The Intensity and Timing of Investment: The
Case of Land
.....
Back to Selected Bibliography
The firm's status (if is active or if is idle) in the economy is path
dependent, for a range of the firm's output price. This concept is
important at firm level (entry & exit models) and also at
macroeconomic level, in the studies of the aggregated investment from a
specific sector of the economy, and sectoral policies.
When considering an investment and abandonment (entry & exit)
together, the firm's optimal decision is characterized by two thresholds:
one firm's output high price level, when the firm invests in production,
and one low price level, when the firm abandon the project. Now suppose
the current level of the price is somewhere between these two threshould:
What's the status of the firm? Depend of the recent prices' fluctuations
history. If the price descended from a high level that induced entry to
many competitive firms, then the firm's status remain active. However, if
the actual intermediate level was recently preceded by a low prices' level
(that induced exit) then the firm remain idle. Or, as pointed out by the
book, "the current state of the stochastic variable is not enough to
determine the outcome in the economy; a longer history is needed. The
economy is path dependent".
Back to the Dixit's paper comments
This expression has been employed by Trigeorgis in several papers.
As Trigeorgis points out,
Expanded (strategic) NPV = static NPV + Option Premium
The "Option Premium" can be from the (most) relevant option, or
a "Combined Option Value" (in a multi-options interactions
context). In large companies, with a large project opportunities
portfolio, the differents "synergy effect" in each portfolio
combination, can be added to the above expression, if relevant.
Back to Trigeorgis' paper comments
Back to the Bibliographical Resources
Back to Contents (the main page)