Real Options: An Introduction to Real Options for Senior Management

Author: Hawell
Publisher:
Publish Date: 2005-06-01
Features: For many aspects of management under uncertainty, the study of real options is becoming increasingly important. This research is not only significant for capital investment decisions but also holds great relevance for corporate strategy, corporate valuation, government policies, and even cognitive psychology. It can be predicted that businesses will gradually respond to the study of real options and their methodologies. Gradually, corporate project planning and financing structures will incorporate insights and logical frameworks from option analysis. At the time of writing this book, there was no widely accepted introductory text on real options. In other words, there was no book that was both conceptually accurate and practical for senior executives, as well as useful for students with ambitions to become technical practitioners and a mathematical foundation. Therefore, we set out to cover these areas: our idea is that two-thirds of the book will be aimed at high-level, non-mathematical managers who need to use the concepts of real options to delegate and coordinate work. We aim to teach them the basic terminology, how this methodology can assist them, and a series of challenging problems that can test the expertise of technical specialists, enabling them to become demanding and discerning clients when necessary. Currently, there are not many fully mature experts in the field of real options, so we speculate that senior managers may sometimes delegate the entire problem to a mathematically inclined subordinate, telling them, "Get this done." We hope this book can help a beginner with a mathematical foundation. Additionally, the remaining one-third of the book is for managers with mathematical knowledge—professionals. They may not be experts in this field, but they either have ambitions to become practitioners or have been assigned this task by superiors. One of the book's goals is to provide these readers with a simple introduction to formal mathematical calculations, followed by economic logic, intuitive explanations, and formal operational steps. All of this is merely a simplified description of standard advanced content. Our third goal is to provide concrete examples, such as an engineer with an engineering degree can accurately understand the next steps and, if necessary, follow our case studies systematically. Like every author, we have learned a great deal from the process of sharing our knowledge. We hope to bring the field of real options the importance and recognition it deserves, but we also want to caution potential users to be wary of exaggerated advertisements and misunderstandings when encountering a new and important field. I am very grateful to my colleagues for identifying some errors in this book, and all remaining errors are my responsibility—especially when dealing with contributions from other members of my editorial team. Additionally, I hope that any distortions unavoidable in compressing the book's content will be understood.