Download this Paper Open PDF in Browser

Compound Real Option Valuation with Phase-Specific Volatility: A Multi-Phase Mobile Payments Case Study

Technovation, Volume 31, Issues 5-6, May-June 2011, Pages 240-255

17 Pages Posted: 12 Dec 2012 Last revised: 5 Mar 2013

Danny Cassimon

University of Antwerp - Institute for Development Policy and Management

Peter-Jan Engelen

Utrecht University - Utrecht University School of Economics

Vilimir Yordanov

Independent

Date Written: October 10, 2010

Abstract

Multi-staged R&D projects are copy-book cases of compound real options. Traditional compound option models assume a constant volatility over the lifetime of the project. Building on the n-fold compound option model of Cassimon et al. (2004), we extend this model to allow for phase-specific volatility estimates, while preserving the closed-form solution of the model. We illustrate the extended model with a case study of a real option valuation of a multi-stage software application project by a large mobile phone operator and we show how project managers can estimate phase-specific volatilities.

Keywords: R&D, Real options, Compound option model, Phase-specific volatility, Mobile payments

Suggested Citation

Cassimon, Danny and Engelen, Peter-Jan and Yordanov, Vilimir, Compound Real Option Valuation with Phase-Specific Volatility: A Multi-Phase Mobile Payments Case Study (October 10, 2010). Technovation, Volume 31, Issues 5-6, May-June 2011, Pages 240-255. Available at SSRN: https://ssrn.com/abstract=2188069

Danny Cassimon

University of Antwerp - Institute for Development Policy and Management ( email )

Prinsstraat 13
Antwerpen, B-2000
Belgium

Peter-Jan Engelen (Contact Author)

Utrecht University - Utrecht University School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands

Vilimir Yordanov

Independent ( email )

Paper statistics

Downloads
100
Rank
224,618
Abstract Views
398