Valuing Modularity as a Real Option
Management Science, Forthcoming
51 Pages Posted: 29 Jan 2008 Last revised: 23 Dec 2019
Date Written: July 9, 2009
We provide a general valuation approach for capital budgeting decisions involving the modularization of a system. Within the framework developed by Baldwin and Clark (2000), we implement an approach using a numerical procedure based on the Least Squares Monte Carlo method proposed by Longstaﬀ and Schwartz (2001). The approach is accurate, general and flexible.
Keywords: Real options, Modularity, Least Squares Monte Carlo
JEL Classification: G12, G31
Suggested Citation: Suggested Citation