The real options approach to valuation - Haskayne School of Business
The real options approach to valuation - Haskayne School of Business
The real options approach to valuation - Haskayne School of Business
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Solu*on Methods (1) • Dynamic Programming <strong>approach</strong> – lays out possible future outcomes and folds back the value <strong>of</strong> the op*mal future strategy – binomial method • widely used <strong>of</strong> pricing simple op*ons • good for pricing American type op*ons • not so good when there are many state variables or there are path dependencies – Need <strong>to</strong> use the risk neutral distribu*on