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Derivatives and Risk Management by Ranganatham Ranganatham, Madhumathi Madhumathi

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chapter 13

Real Options

Learning Objectives

After reading this chapter, you will be able to understand

  • the features of real options
  • application of real options in capital budgeting
  • application in research and development
  • application in property development
  • the option principles for portfolio investments
Chapter Outline

13.1 Introduction

13.2 Characteristics of Real Options

13.3 Corporate Capital Budgeting Application

13.4 Research and Development Application

13.5 Property Development Application

13.6 Portfolio of Real Options

13.7 Practical Considerations

THE SITUATION

Mohan Bazaar, a department store, is planning to establish a super market in Bangalore. It costs ₹ 500 million to acquire a building for which an advance of ₹ 50 million ...

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