Binary Options and Real Assets
University of the Witwatersrand
Acuitas-Journal of Management Research, 1 (2), 2011: 45-54
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.
Number of Pages in PDF File: 10
Keywords: All or Nothing, Binary Options, Real Assets
JEL Classification: G12, G13
Date posted: October 19, 2012 ; Last revised: October 21, 2012