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Binary Options and Real Assets

Acuitas-Journal of Management Research, 1 (2), 2011: 45-54

10 Pages Posted: 19 Oct 2012 Last revised: 21 Oct 2012

Tumellano Sebehela

University of the Witwatersrand - School of Construction Economics & Management

Date Written: 2011

Abstract

As real options is a novel idea, which draws its concepts and principles from diffrent disciplines, mainly from business administration, this paper conceptually links traits of binary options and real options in the broader sense. On hedging real assets, it seems that there is no clear hedging startegy that ideal; however, static hedging seems better as most capital projects require huge capital injection and implemntation of prudent risk measures without incurring high costs. Furthermore, it can be inferred that binary options have similar charateristics as capital projects, especially venture capital projects, and research and development project. One such similar charaterics is that you receive more capital injection into the project provided that the preceding stage was a ‘successful’ one. Therefore, similarity illustrated that binary options frmulas can be used to value some capital projects depnding of prevailing circumstances.

Keywords: All or Nothing, Binary Options, Real Assets

JEL Classification: G12, G13

Suggested Citation

Sebehela, Tumellano, Binary Options and Real Assets (2011). Acuitas-Journal of Management Research, 1 (2), 2011: 45-54. Available at SSRN: https://ssrn.com/abstract=2163924

Tumellano Sebehela (Contact Author)

University of the Witwatersrand - School of Construction Economics & Management ( email )

1 Jan Smuts Avenue
Braamfontein, Johannesburg
South Africa

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