Real Options


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Detailed content

  • Equityvaluation
  • Growth option
  • Value of a patent in the pharma industry
  • Option to exit a JV in a M&A context
  • Pricing of an oil concession
  • Breakdown of the debt value taking LGD into account
  • Evidence of the Black & Scholes formula
  • Dixit & Pindyck model for perpual options
  • Estimation of the firm's assets volatility

Excel simluations

Underlying Excel sheets corresponding to the abovementioned detailed content

Userful papers on options

  • Fischer Black and Myron Scholes explain in their seminal paper, published in 1973 by the Journal of Political Economy, that the shareholders have an option on their firm's assets. In other terms, the equity value is the call premium on the firm's assets, the strike price being the face value of debt ie the amount to be repaid: "The Pricing of Options and Corporate Liabilities": Paper
  • Robert Merton proposes a formula to calculate the risk premium of a corporate debt in a paper published in 1973 by the Journal of Finance: "On the Pricing of Corporate Debt: the Risk Structure of Interest Rates": Paper