Multi-Stage Real Options: The Cases of Information Technology Infrastructure and International Bank Expansion
Posted: 31 Oct 1998
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
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