Strategic Investment: Real Options and Games

Princeton University Press
Free sample

Corporate finance and corporate strategy have long been seen as different sides of the same coin. Though both focus on the same broad problem, investment decision-making, the gap between the two sides--and between theory and practice--remains embarrassingly large. This book synthesizes cutting-edge developments in corporate finance and related fields--in particular, real options and game theory--to help bridge this gap. In clear, straightforward exposition and through numerous examples and applications from various industries, Han Smit and Lenos Trigeorgis set forth an extended valuation framework for competitive strategies.

The book follows a problem-solving approach that synthesizes ideas from game theory, real options, and strategy. Thinking in terms of options-games can help managers address questions such as: When is it best to invest early to preempt competitive entry, and when to wait? Should a firm compete in R&D or adopt an accommodating stance? How does one value growth options or infrastructure investments? The authors provide a wide range of valuation examples, such as acquisition strategies, R&D investment in high-tech sectors, joint research ventures, product introductions in consumer electronics, infrastructure, and oil exploration investment.

Representing a major step beyond standard real options or strategy analysis, and extending the power of real options and strategic thinking in a rigorous fashion, Strategic Investment will be an indispensable guide and resource for corporate managers, MBA students, and academics alike.

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About the author

Han T. J. Smit is HAL Professor of Private Equity at Erasmus University in Rotterdam. Lenos Trigeorgis has been the Bank of Cyprus Chair Professor of Finance at the University of Cyprus and Visiting Professor of Finance at the University of Chicago. His book Real Options is a classic in the field.
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Additional Information

Publisher
Princeton University Press
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Published on
Jan 12, 2012
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Pages
504
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ISBN
9781400829392
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Language
English
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Genres
Business & Economics / Economics / Theory
Business & Economics / Investments & Securities / General
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Content Protection
This content is DRM protected.
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Read Aloud
Available on Android devices
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Eligible for Family Library

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Seminar paper from the year 2003 in the subject Business economics - Investment and Finance, grade: 1,0 (A), European Business School - International University Schloß Reichartshausen Oestrich-Winkel (Department for Corporate Finance and Capital Markets), course: Seminar International Corporate Finance, 50 entries in the bibliography, language: English, abstract: The groundbreaking work of MODIGLIANI & MILLER (MM) introduced the rigors of economic analysis to financial research. This is generally considered the beginning point of modern managerial finance. Their first economic models were challenged by financial practitioners for being overly simplistic in their assumptions and, therefore, lacking real world application value. MM acknowledged and addressed this fact in their first paper. Later models relaxed some assumptions, such as symmetric information or complete contracts, while trying to retain an explanatory value in the spirit of the original MM papers. This incorporation of more realistic elements, such as strategic interaction and asymmetric information, brought several problems to financial economists’ models: they required a lot of definitions, became even more complex and were not easily comparable. Game theory provided a solution for those problems in its first applications to economics in the 70s and 80s: a set of common definitions and a basic language to guarantee comparability and empirical testability of financial models using game theoretic concepts. Nowadays, there are few issues in finance research which have not been modeled by applying game theoretic concepts, and therefore it is crucial to be familiar with the basics of game theory and its application in finance. The objective of this paper is to provide an intuitive approach to game theory in finance by first giving an overview of the basic foundations of game theory, and then providing a survey of some selected applications most relevant to the financial practitioner.
This compilation integrates various new contributions to the growing "real options" literature. Recent developments in the valuation of capital investment opportunities seen as real options (e.g. to defer, expand, abandon, or switch use) have provided the tools and unlocked the possibilities to revolutionize the field of capital budgeting. The resulting insights, strategies, and techniques enable quantifying the thus far elusive elements of managerial flexibility and various strategic interactions. In an uncertain and constantly changing world marketplace, managerial operating flexibility and strategic adaptability are vital to successfully capitalize on favorable future investment opportunities or limit losses from adverse market developments. This book presents various models and operating strategies, and a variety of applications ranging from acquisitions and divestitures, to natural resource development and pollution compliance. The book's contributions are divided into five parts, covering sections on real options and alternative valuation paradigms for capital investment analysis; on the analysis of general exchange or switching options, and interdependencies among multiple such options; on strategic acquisitions, infrastructure, and foreign investment options; on mean reversion/ alternative formulations in natural resource investments, shipping, and start-up ventures; and on other applications in pollution compliance, land development, flexible manufacturing, and financial default options. Both academic and practitioner interest in these developments is unusually high. The book can serve as supplementary material for the academic market, e.g., in advanced finance courses in option pricing or capital budgeting, in doctoral seminars, and as a library resource. It may also be of interest to the professional market (e.g. corporate planners and finance executives in the oil, pharmaceutical, auto and a variety of other industries), academics from related areas (e.g. decision analysts or economists), as well as to international readers (academics, doctoral students, and professionals).
An unimpeachable classic work in political philosophy, intellectual and cultural history, and economics, The Road to Serfdom has inspired and infuriated politicians, scholars, and general readers for half a century. Originally published in 1944—when Eleanor Roosevelt supported the efforts of Stalin, and Albert Einstein subscribed lock, stock, and barrel to the socialist program—The Road to Serfdom was seen as heretical for its passionate warning against the dangers of state control over the means of production. For F. A. Hayek, the collectivist idea of empowering government with increasing economic control would lead not to a utopia but to the horrors of Nazi Germany and Fascist Italy.

First published by the University of Chicago Press on September 18, 1944, The Road to Serfdom garnered immediate, widespread attention. The first printing of 2,000 copies was exhausted instantly, and within six months more than 30,000 books were sold. In April 1945, Reader’s Digest published a condensed version of the book, and soon thereafter the Book-of-the-Month Club distributed this edition to more than 600,000 readers. A perennial best seller, the book has sold 400,000 copies in the United States alone and has been translated into more than twenty languages, along the way becoming one of the most important and influential books of the century.

With this new edition, The Road to Serfdom takes its place in the series The Collected Works of F. A. Hayek. The volume includes a foreword by series editor and leading Hayek scholar Bruce Caldwell explaining the book's origins and publishing history and assessing common misinterpretations of Hayek's thought. Caldwell has also standardized and corrected Hayek's references and added helpful new explanatory notes. Supplemented with an appendix of related materials ranging from prepublication reports on the initial manuscript to forewords to earlier editions by John Chamberlain, Milton Friedman, and Hayek himself, this new edition of The Road to Serfdom will be the definitive version of Hayek's enduring masterwork.
This is the eBook of the printed book and may not include any media, website access codes, or print supplements that may come packaged with the bound book.

For graduate courses in business, economics, financial mathematics, and financial engineering; for advanced undergraduate courses with students who have good quantitative skills; and for practitioners involved in derivatives markets

Practitioners refer to it as “the bible;” in the university and college marketplace it’s the best seller; and now it’s been revised and updated to cover the industry’s hottest topics and the most up-to-date material on new regulations. Options, Futures, and Other Derivatives by John C. Hull bridges the gap between theory and practice by providing a current look at the industry, a careful balance of mathematical sophistication, and an outstanding ancillary package that makes it accessible to a wide audience. Through its coverage of important topics such as the securitization and the credit crisis, the overnight indexed swap, the Black-Scholes-Merton formulas, and the way commodity prices are modeled and commodity derivatives valued, it helps students and practitioners alike keep up with the fast pace of change in today’s derivatives markets.

This program provides a better teaching and learning experience—for you and your students. Here’s how:

NEW! Available with a new version of DerivaGem software—including two Excel applications, the Options Calculator and the Applications Builder Bridges the gap between theory and practice—a best-selling college text, and considered “the bible” by practitioners, it provides the latest information in the industry Provides the right balance of mathematical sophistication—careful attention to mathematics and notation Offers outstanding ancillaries toround out the high quality of the teaching and learning package
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