1. Real Options and Business Strategy
APPLICATIONS TO DECISION-MAKING
Edited by Lenos Trigeorgis
B O O K S

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Introductory overview © Financial Engineering Ltd, 1999
This compilation © Financial Engineering Ltd, 1999
ISBN 1 899332 47 2
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3. Contents
Authors vii
Introduction xv
Lenos Trigeorgis
1 Project Evaluation, Strategy and Real Options 1
Alberto Micalizzi and Lenos Trigeorgis
2 Growth Options, Competition and Strategy: 21
An Answer to the Market Valuation Puzzle?
Han T.J. Smit and Lenos Trigeorgis
3 Creating and Managing Shareholder Value: 39
A View Through a Real Options Lens
Alexander J. Triantis
4 Applications in Real Options and Value-based Strategy 59
Justin Pettit
5 The Flexibility for Discontinuing Product Development 85
and Market Expansion: The Glaxo Wellcome Case
Alberto Micalizzi
6 A Business Shift Approach to R&D Option Valuation 117
Onno Lint and Enrico Pennings
7 Airline Long-Term Planning Under Uncertainty: 135
The Benefits of Asset Flexibility Created Through Product
Commonality and Manufacturer Lead Time Reductions
John Stonier
8 Real Option Valuation for E-Business: A Case Study 161
Richard Chatwin, Yann Bonduelle, Anne Goodchild,
Franchee Harmon and João Mazzuco
9 Using Real Options to Frame the IT Investment Problem 185
Nalin Kulatilaka, P. Balasubramanian and John Storck
10 Software Design as an Investment Activity:
A Real Options Perspective 215
Kevin Sullivan, Prasad Chalasani, Somesh Jha and Vibha Sazawal
11 The Valuation of Natural Resources 263
Gonzalo Cortazar
v

4. REAL OPTIONS AND BUSINESS STRATEGY
12 Learning and Exercising Options to Reduce Capital 279
Project Risk
Larry Chorn and Peter Carr
13 The Value of Market Research When a Firm is Learning: 295
Real Option Pricing and Optimal Filtering
David Epstein, Nick Mayor, Philipp Schönbucher,
Elizabeth Whalley and Paul Wilmott
14 Valuing the Operational Flexibility of a Multinational 321
Enterprise (with Implications for Investment Location
and Capacity Choice Decisions)
Arun S. Muralidhar
A Note on Bibliographical Evolution of Real Options 357
Marco Antônio Guimarães Dias
Index 363
vi