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Real Options analysis may be still under developed. But within the next few years,one important trend appearing in the world would be the rapid migration of existingfinancial option skills and models for use on real options (Howell, 2001). Brennan &Trigeorgis (2000): ―W here once the payback criterion reigned suprem e, ...discountedcash flow techniques … gradually gained acceptance and now tend to have pride ofplace*; as yet, only a few corporations are beginning to employ the real optionsparadigm that is derived from the classical financial option pricing paradigm ofBlack-S cho les and M erton.‖Page | 70
References1. Amram M & Kulatilaka N (1999). Real Options: Managing Strategic Investmentin an Uncertain World. Boston: Harvard Business School Press2. Bode-Greuel K. (2000), Real Options Evaluation in Pharmaceutical R&D: A newapproach to financial project. Scrip Reports: PJB Publication Ltd3. Bode-Greuel K. (1997), Financial Project Evaluation and Risk Analysis inPharmaceutical Development, Scrip Reports4. Borison, A. (2005), ―Real Options Analysis: Where Are the Emperor‘s Clothes?‖,Journal of Applied Corporate Finance, Vol. 17, No. 2, pg. 17-315. Brandao, L. E., Dyer, J. S. and Hahn, W. J. (2005), ―Using Binomial DecisionTrees to Solve Real-Option Valuation Problems‖, Decision Analysis, Vol. 2, No.2,June, pg.69-886. Brealey, R. A. and Myers, S. C. (2003), Principles of Corporate Finance, 7 thedition, McGraw-Hill: US, pg.616-6347. Brennan, M.J. and Schwartz, E.S. (1985). ―Evaluating natural resourceinvestments‖. Journal of Business, 58, 135–157.8. Brennan M.J. and Trigeorgis L. (2000), Project flexibility, agency, andcompetition : new developments in the theory and application of real options,New York ; Oxford : Oxford University Press9. Bruun S. and Bason P. (2001) Literature on Real options in Venture capital andR&D, available at: http://pages.stern.nyu.edu/~adamodar/pdfiles/eqnotes/opt1.pdf10. Copeland, T., and Tufano, P. (2004), ―A Real-World Way to Manage RealOptions‖, Harvard Business Review, Vol. 82, Issue 3, pg.90-9911. Copeland T and A ntikarov V . (2003), R eal O ptions: a P ractitioner‘s G uide. N ewYork: TexerePage | 71
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APPLICATION OF REAL OPTIONS VALUATI
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Table of ContentsAbstract .........
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List of TablesTable 5.1: Value of O
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Chapter One— IntroductionAs one o
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Then, in Chapter 4, the case study
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and we will have the right to take
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project, to get its salvage value,
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The option to switch:If assets have
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2.2 Advantages of Real Option Valua
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In the case of pharmaceutical R&D,
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delayed in time. Undertaking one pr
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Figure 2.2: Advantages and disadvan
Page 25 and 26: smallest possible payoff of zero, w
Page 27 and 28: options applications is the binomia
Page 29 and 30: t: years to expirationr: annual ris
Page 31 and 32: Chapter Three— Apply Real options
Page 33 and 34: on Howell et al (2001).3.1.1 Precli
Page 35 and 36: approved.3.2 real options valuation
Page 37 and 38: Figure 3.3: Comparison of a call op
Page 39 and 40: applying the principals of activity
Page 41 and 42: that has occurred in the past. Depe
Page 43 and 44: Chapter Four— Case StudyFor this
Page 45 and 46: 4.3 DavanrikLAB Pharmaceuticals ori
Page 47 and 48: efficacious for depression only, a
Page 49 and 50: Chapter Five— Case Study Analysis
Page 51 and 52: figure below:Figure 5.3: NPV of Dav
Page 53 and 54: Merck & Co (10%), which gives $2338
Page 55 and 56: approval and other issues. Therefor
Page 57 and 58: of $345m at year 0 (which is $672.3
Page 59 and 60: project turns out to be unprofitabl
Page 61 and 62: these three options, the risk-free
Page 63 and 64: ewrite as, noting all the costs (in
Page 65 and 66: Figure 5.10: Valuation of Option A
Page 67 and 68: Figure 5.12: Valuation of Option A
Page 69 and 70: Figure 5.13 Valuation of Compound r
Page 71 and 72: $ in millionmillion to $113.97 mill
Page 73 and 74: Chapter Six— Limitations and conc
Page 75: discovery projects, arrives in a di
Page 79 and 80: 31/08/2006, available at: http://ho
Page 81 and 82: 46. T rigeorgis L . (1995), ―M et
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