Real options analysis is 30 years old, but there is still little guidance on how actually to implement it in practice. This book develops the building blocks of real options analysis and shows readers how to apply them to a wide variety of problems in business and economics.

Graeme Guthrie is a professor in the School of Economics and Finance at Victoria University of Wellington.

• Preface


• 1 Introduction


• I: Foundations


• 2: The modeling framework


• 3: Valuing single-period cash flows


• 4: Valuing multi-period cash flows


• 5: Combining valuation and decision making


• II Component Real Options


• 6: Options that do not affect the state of a project


• 7: Simple timing options


• 8: Compound timing options


• 9: Über-compound timing options 200


• 10: Switching options


• 11: Learning options


• III Calibrating the Model 293


• 12: Calibration using spot and futures price data 294


• 13: Calibration using option price data


• 14: Calibrating trees of alternative state variables


• IV Putting the Pieces Together


• 15: Forestry management and valuation


• 16: Developing a gas field


• 17: Mothballing an ethanol plant


• 18: Where to from here?