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"Real Options is an exciting, accessible introduction to one of the most useful innovations of modern finance. Filled with lively examples from various industries, the book reveals the strategic power of real options in business planning."--David G. Luenberger, Professor of Engineering-Economic Systems and Operations Research, Stanford University, and author of Investment Science
"This new book by Martha Amram and Nalin Kulatilaka provides a much-needed treatment of real options theory aimed at the practitioner. It is comprehensive, highly readable, and replete with useful examples. Every corporate finance practitioner should have a copy of Real Options on hand. --Robert S. Pindyck, Mitsubishi Bank, Professor of Applied Economics, MIT Sloan School of Management, and coauthor of Investment Under Uncertainty
"Uncertainty is the greatest risk a manager faces--and provides the greatest opportunity for creating value. This book offers a way of thinking that helps managers balance
Product Description
We live in an uncertain world. Read the first page
Concordance
Front Cover | Copyright | Table of Contents | Excerpt | Index | Back Cover
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Most Helpful Customer Reviews
4 of 4 people found the following review helpful:
3.0 out of 5 stars
OK for a general introduction,
By
This review is from: Real Options:: Managing Strategic Investment in an Uncertain World (Financial Management Association Survey and Synthesis) (Hardcover)
This book gives an OK introduction to the applications and thinking of real options...however, it is not rigorous in any way and the more technically minded reader should look elsewhere for proper treatment of option calculation methods. It is a concern to me that people have said that the models presented in this book are simple and universally applicable...they are not (unless you want the wrong answers!). If you want an easy-going introduction to real options with no brain-strain, go for this book...if you want a bit more rigour from an authorative source, there are two choices: Lenos Trigeorgis' book also called Real Options, and Investment under uncertainty by Dixit and Pindyck.
1 of 1 people found the following review helpful:
2.0 out of 5 stars
A rather disappointing book for the general reader,
By A. K. Johnston "(www.andrewj.com/books)" (LEATHERHEAD United Kingdom) - See all my reviews (VINE VOICE) (REAL NAME)
This review is from: Real Options:: Managing Strategic Investment in an Uncertain World (Financial Management Association Survey and Synthesis) (Hardcover)
I was rather disappointed by this book. I was hoping for something which could help explain to business managers why processes such as IT delivery are uncertain, and the value of delivering flexible solutions. The initial part of the book makes a lot of strong qualitative statements of exactly the right sort:- There is great value in breaking up large projects in uncertain markets - Options (flexibility) create value out of uncertain events. - Exit options which allow you to step away from a planned path, even if relatively expensive, may have significant value. - An option such as an exit option, can make an investment viable when it would fail a traditional NPV test. - Small speculative investments can enable larger investments to benefit from learning and to be much more accurately targeted. - It may create greater value to start many projects and abandon more, rather than aiming to abandon a minimum number. Unfortunately the remainder of the book then supports these statements only for a very limited set of circumstances. The Real Options approach only seems to work if the option can be translated into (or at least mapped onto) a tradeable financial security. There's no real attempt to provide tools to evaluate internal uncertainty, such as the delivery uncertainty common in IT projects, or the value of flexibility except where it maps to significant investment decisions. The book does do a good job of explaining that real world situations are non-linear, with value which changes as a result of natural volatility, over time, and as a result of one or more decisions. Traditional NPV-based approaches greatly undervalue flexibility, insurance, learning and platform investments, and can't really deal with this non-linear aspect. Simply increasing the investment discount rate, which is the usual way of dealing with such problems, doesn't bring the correct focus onto uncertainty and total risk. However, the mathematical basis for Real Option valuation is not well explained, and I found the processes difficult to follow. I suspect that the authors implicitly assumed a certain familiarity with economic and financial market techniques and terminology, which limits the value of this book to those seeking, as I was, to apply the techniques to other fields. It also left me puzzled as to why simpler approaches, such as Decision Tree techniques, can't be used instead. Surprisingly for a relatively short book the text is very repetitive, and too often turns into a blatant advert for the Real Options approach compared with others, rather than making the case on its own merits. This book provides some good ideas, and if your focus is major business-critical financial transactions it may be very useful. But I'm still looking for a good book on how to generically value flexibility.
4.0 out of 5 stars
Well-written outline, could use a little more quants..,
By A Customer
This review is from: Real Options:: Managing Strategic Investment in an Uncertain World (Financial Management Association Survey and Synthesis) (Hardcover)
Amram and Kulatilaka have produced an excellent overview of the real options theory and practical application. The book helps recognize real options by giving lots of examples and provides with a clear description of a "four step solution proces". Yet, the book could do with a little more attention on the quants, especially in the examples. E.g. chapter 13 on Drug development states that "it was found that a drug (..) had a value of $14.6 mln using the real options approach". That's fine with me, but how exactly did you calculate that ?
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