We posit that firms with valuable real options have higher demand for cash and liquid assets and propose a simple procedure for identifying firms with valuable real options. Our procedure assumes that, all else being equal, a firm's real options are more valuable when their underlying volatility...

This paper surveys the theoretical literature investigating the effect of firms' investment flexibility on the cross-section of expected stock returns. Real options analysis derives firms' value-maximizing investment policies as functions of exogenous fundamental drivers of profitability and...

Firms who want to survive in a dynamic and uncertain environment must keep some degrees of strategic flexibility to catch emerging opportunities. The flexibility acts as a buffer to risk and as a stock of resources to create a portfolio of real options. In this work we assume that firms'...

This paper applies real options theory to establish an overseas oil investment evaluation model that is based on Monte Carlo simulation and is solved by the Least Squares Monte-Carlo method. To better reflect the reality of overseas oil investment, our model has incorporated not only the...

This paper applies real options theory to establish an overseas oil investment evaluation model that is based on Monte Carlo simulation and is solved by the Least Squares Monte-Carlo method. To better reflect the reality of overseas oil investment, our model has incorporated not only the...

Previous research shows that volatility in oil prices has tended to depress output, as measured by non-residential investment and GDP. This is interpreted as evidence in support of the theory of real options in capital budgeting decisions, which predicts that uncertainty about, for example,...

Using the real options game approach, we analyze the two-stage preemptive patent-investment race between an incumbent and a challenger (new entrant) in a product market with profit flow uncertainty. The challenger can gain entry into the monopolized product market dominated by the incumbent by...

This study attempts to estimate the fundamental capital value of a growing firm by combining two separate capital valuation techniques, namely the corporate debt valuation of Merton (1974) and the rational pricing technique of internet companies of Schwartz and Moon (2000). For simplicity, the...

This paper establishes a degree of influence between an inflation rate and a risk-free investment rate on the precision of estimated value of an Asian real option. It has been shown with an example that in the event of advancing by the inflation rate beyond profitability of risk-free...

All in Smoke Ltd (AIS Ltd), 100% export oriented unit (EOU) and in the manufacturing business of tobacco and cigarette, is a wholly-owned subsidiary of its listed parent firm. The parent firm, a sizable player in the same industry with a number of well-known brands in its portfolio, has recently...