Multi-Stage Real Options: The Cases of Information Technology Infrastructure and International Bank Expansion

Posted: 31 Oct 1998

See all articles by Sylvia Panayi

Sylvia Panayi

Johns Hopkins University

Lenos Trigeorgis

University of Cyprus - Department of Public and Business Administration; King's College London; Massachusetts Institute of Technology (MIT) - Sloan School of Management

Abstract

This paper examines multi-stage real options applications that have strategic import beyond that captured by standard DCF valuation approaches. After reviewing the concept of multi-stage options in the case of R&D, the paper analyzes two actual case studies: the information technology infrastructure decision by a telecommunications authority; and the international expansion option by a bank. It is shown that options valuation can justify making such strategic investment decisions even if NPV suggests otherwise.

JEL Classification: G21, G31, G32, L96

Suggested Citation

Panayi, Sylvia and Trigeorgis, Lenos, Multi-Stage Real Options: The Cases of Information Technology Infrastructure and International Bank Expansion. 1998 Special Issue of The Quarterly Review Of Economics And Finance, III. Issues in Application. Available at SSRN: https://ssrn.com/abstract=129268

Sylvia Panayi

Johns Hopkins University ( email )

Baltimore, MD 21218
United States

Lenos Trigeorgis (Contact Author)

University of Cyprus - Department of Public and Business Administration ( email )

75 Kallipoleos Street
P.O. Box 20537
Nicosia CY-1678
Cyprus
00357 2 338762 (Phone)
00357 2 339063 (Fax)

King's College London ( email )

Strand
London, WC2R 2LS
United Kingdom

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

77 Massachusetts Ave. E62-663
Cambridge, MA 02142
United States

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