February 2003
Intermediate to advanced
256 pages
6h 56m
English
Content preview from Expectations Investing
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We don’t need to understand the intricacies of an option-pricing
model to understand what fundamentally increases real-options value.
Value rises when the net present value (S – X) increases, when we extend
the time we have to defer decisions (T), or when volatility () height-
ens.
Valuing Real Options
We can always directly calculate the value of a real option using the
Black-Scholes formula.But a lookup table that covers the likely range of
inputs is much more intuitive.Table 8-1 is an adaptation of such a table,
from Richard Brealey and Stewart Myers.
6
The table reduces the five option inputs to a simple two-by-two
lookup table.Panel A shows the value ...
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