Real Options Overview

1、Real Options OverviewBusiness is beginning to recognize the value of real options analysis as demonstrated byat least three recent articles on this topic in the Harvard Business Review (Dixit andPindyck, 1995; Luehrman, 1998a,b). Moreover, the non-telephone utility industry andmany other industries

2、facing decisions on R&D spending, project/asset evaluation,mergers, acquisitions and other investments have utilized real options valuation foryears.1. WHAT ARE REAL OPTIONS?The traditional approach to project evaluation and investment decisions uses discountedpresent value (DPV) or discounted cash

3、flow (DCF) methods. These methods explicitlyassume the project will meet the expected cash flow with no intervention bymanagement in the process. All the uncertainty is handled in the (risk-adjusted) discountrate. This process is static. At most, the expected value of the cash flow is incorporatedin

4、to the analysis.Managements flexibility to make decisions as states of nature are revealed is assumedaway by this methodology. However, management discretion has value, which is notincorporated into the DPV. The real options methodology goes beyond this nave view ofvaluation and more closely matches

5、 the manner in which firms operate. It allows for afirms flexibility to abandon, contract, expand or otherwise modify its actions after naturehas revealed itself. This is the first lesson for policymakers if they wish to emulate thecompetitive process, they cannot rely on the application of nave DCF

6、 methods in costmodels.Decision-tree analysis (DTA) moves the analysis one step forward by allowing thatalternative states of nature are possible. But, as in the case of DCF, the appropriaterisk-adjusted discount rate is virtually indeterminate.1 Using the firms opportunity cost ofcapital is inappro

7、priate if the project does not correlate with the companys cost of capital another lesson for the telecommunications industry. Unbundled network elementshave different levels of risk. For example, the operator services elements risk/return ismuch different from that of the local loop element. Calcul

8、ating the cost/price of theseelements using the same discount rate would be incorrect.The second insight of the theory is the recognition that well-developed financial/portfoliotheory applies to asset/project evaluation. This allows for the integration of capitalbudgeting issues with physical (i.e.,

9、 “real”) assets on the one hand, and the incorporationof decision-tree analysis on the other. A portfolio of securities is created that is(perfectly) correlated with the investment. The portfolios price and return are known.Rather than considering the expected value of outcomes, it incorporates the

10、probabilitydensity function within the analysis. The determination of a risk-adjusted discount rate isnot necessary. While uncertainty is not eliminated, it is accounted for in the densityfunction and the twin portfolio. The construction of an equivalent portfolio to the asset in1 While it is possib

11、le to determine the risk-adjusted discount rate, it involves certainty-equivalentor risk-neutral probabilities, which are not easy to calculate. Moreover, real options methodologyremedies this problem. See Trigeorgis, pp. 58- 68.2 Allemanquestion can be evaluated using techniques that have been deve

12、loped for financialoptions, for example, the Black-Scholes methods of option valuation (Black andScholes,1973. See Hull, 2000 for a complete description of options methods).22. REAL OPTIONSWhile the real options theory is complex in its mathematics (the early users of DPVanalysis must have had the s

13、ame thoughts, of course; financial calculators, let alonecomputers, were not available to them!), the effort is worth it.Real options is a means of capturing the flexibility of management to addressuncertainties as they are revealed. Capital budgeting fails to account for this flexibilityand to inte

14、grate the flexibility with strategic planning. The flexibility that management hasincludes: defer, abandon, shut down and restart, expand, contract, and switch use.The capital asset pricing model (CAPM) has its limitations, as does many of thetraditional approaches to dealing with uncertainty such a

15、s simulations, decision-treeanalysis, and sensitivity analysis.The key valuation concept of (financial) options theory is that an option can be pricedbased on the construction of a portfolio of a specific number of shares of an underlyingasset, and that one can borrow against the shares at a riskles

16、s rate to replicate thereturn of the option in a risk-neutral world.An analogy exists between financial options and real options, although the analogy haslimitations. However, the real options theory is able to overcome the deficiencies of thetraditional present value technique through an understand

17、ing of the interactions,interdependencies, and competitive interactions among projects.Real options methodologies can take the best features of DCF and DTA without theirfailings. The intuition is simple, but profound managements decisions skew thedistribution of possible outcomes toward the upside.R

18、eal options method can make a significant difference in the valuation (however, asimple linear addition to the valuation of a traditional discounted cash flow analysiscannot correct for the real options impact). It expands the notion of the managersflexibility and strategic interaction in skewing th

19、e results of the traditional DPV analysiswhich, as with financial options, allows for gains on the upside, and minimizes thedownside potential, thus increasing the valuation. Strategic considerations aremagnified or made explicit by the analysis. Viewed in light of traditional economic theory,real o

20、ptions methodology suggests that the traditional theory needs reevaluation.No ad hoc, exogenously provided, single risk-adjusted discount rate properly capturesthe interdependencies between current and future decisions in the presence of2 A financial option is the right to buy (a call) or sell (a pu

21、t) a stock, but not the obligation, at agiven price within a certain period of time. If the option is not exercised, the only loss is the priceof the option, but the upside potential is large. The asymmetry of the option the protection fromthe downside risk with the possibility of a large upside gai

22、n is what gives the option value. (AEuropean option can only be exercised on a specific date, while a U.S. option can be exercised atany time before the expiration date.)Real Options Overview 3managerial flexibility, since risk changes endogenously in time, with the underlyinguncertain variable, and

23、 with managerial response. Since the value of a flexible projectand the optimal operating (exercise) schedule must generally be determinedconcurrently, the discount rate must, in effect, be imputed endogenously within a forwardlookingdynamic programming process.An option-based (expanded-NPV) analysi

24、s bypasses the discount-rate problem by relyingon the notion of a comparable security to properly price risk while still being able tocapture the dynamic interdependencies between cash flows and future optional decisions(Trigeorgis 1996, p. 200).Real options has implications for strategic planning,

25、one of the major uses of the theory,and can integrate strategic planning, capital budgeting, and control.Competitive interaction valuations can be dealt with both exogenous entry andendogenous reactions. Real options theory can be applied in a game-theoretic contextand can make a difference to a fir

26、ms strategy.Although real options theory is increasingly used in industry, it has not been applied inthe telecommunications industry.3 But, as will be argued below, telecommunications isripe for this methodology.3. RELEVANCE TO TELECOMMUNICATIONSThe real options literature is relevant to telecommuni

27、cations in three areas: strategicanalysis, estimation and cost modeling.3.1 Strategic evaluationThe relevance to strategic planning is obvious. The bulk of “strategic” planning in thetelecommunications industry has revolved around budget projections and scenarioanalysis based on discounted cash flow

28、 analysis. Concerns such as price elasticity,uncertainty and other economic considerations came late to the industry.4 Indeed, in theera of monopoly control and rate-of-return regulation, strategic planning (or the lack of it)was not critical. The whole game was in the regulatory strategy. Times hav

29、e now,obviously, changed and so must the analysis in order for telecommunications companies emerging, new, and old to become or remain viable. The real options approach willaid in this endeavor.3.2 EstimationMany behavior assumptions are embedded in econometric structures that are necessary3 Hausman

30、s application of options theory to value unbundled network elements may be as closeas the industry has come to such an application (Hausman, 1997, 1998).4 Two examples can be given for the telephone industry. First, Taylor indicated that the telephoneindustry did not concern itself with price elasti

31、city effects until it was confronted in the regulatoryarena (1980). Second, while the author was with GTE in the 1980s, its method of “strategic”planning consisted of increasing annual budgets by a given percentage from the previous yearsbudget.4 Allemanfor interpreting the estimates, but real optio

32、ns changes the nature of these, which hasconsequences for the accuracy of the estimations. Little, if any, work to date hasaddressed this issue, although the consequences have been reported (Dixit andPindyck, 1994). For example, real options theory changes the nature of the shutdownpoint in the theo

33、ry of the firm. It may no longer be optimal for the firm to close whenrevenues go below variable costs because, in the dynamic world, it may be optimal tokeep the option open to serve the market when demand is more robust. Closing downmight preclude this option. Allowing the dynamics of real options

34、 to be incorporated intotraditional economic theory, in addition to the obvious integration of finance into themodels, could dramatically change the outcomes of traditional theory.3.3 Cost modelingAttempts to estimate forward-looking costs around the world are based on modelswhose foundation is trad

35、itionally applied discounted cash flow analysis exactly themethod that real options methodology has shown can give terribly wrong results.5 Thesecost models are ideal vehicles to adapt to the real options methodology.All the data in these models are in a form to which real options considerations can

36、 beapplied without a measured change in their structure. However, it should be cautionedthat the results are nonlinear, that is, the modelers cannot simply add an “additive” to theresults of their models to “correct” for the real options impact.The literature shows valuation analysis has been enhanc

37、ed with real options theory thataccounts for the investment uncertainties, subject to probability distribution, that arelacking in the DCF analysis. Applying the real options methodology to DCF analysis canmake a significant change in the valuation as much as a factor of two.6 All currentcost models

38、 ignore this enhancement.These cost models are used for a variety of purposes: the calculation of universalservice obligations, access charges, or unbundled network elements (UNE) prices.Given their recognized limitations, it would appear irresponsible to continue to use thesecurrent cost models for

39、 these important functions which have significant economicimpact for both providers and consumers.4. CONCLUSIONWhile academics in the field of finance are generally conversant with the real optionsliterature, those who are involved in engineering economics, industrial organization, orrelated discipl

40、ines may not be aware of this theory. It should be high on their reading list.Managers cannot afford to ignore the implications and methods developed by real5 While these cost models go into great detail on the engineering aspects of the telephonenetwork, many lack a fundamental understanding of eco

41、nomics and finance: they fail to apply theappropriate, traditional techniques of engineering economics. Some do not use presentdiscounted value or discounted cash flow (DCF) techniques to evaluate the capital investments.They simply use a revenue requirement method based on arbitrary cost allocation

42、s. Many of thecost models have ignored DCFs major contribution to asset valuation (e.g., NERA, 1999, pp.80ff). See Alleman, 1999 for a detailed critique of proxy cost models.6 Dixit and Pindyck (1994, p.153) achieve this result with the numerical analysis of a reasonableset of parameters that compar

43、es traditional DCF with the real options approach.Real Options Overview 5options analysis.Policymakers who attempt to model the market behavior of firms in competition shouldalso have an awareness of real options. Effective policy dealing with costs cannot bemade without a fundamental understanding

44、of this theorys implications.Real options offers the possibility to integrate major analytical methods into a coherentframework that more closely approximates the dynamics of the firms behavior with lessheroic assumptions regarding the dynamics of the environment.James AllemanUniversity of Colorado6

45、 AllemanReferencesAlleman, James, 1999 The poverty of cost models, the wealth of real options, in Allemanand Noam (eds.), The New Investment Theory of Real Options and Its Implications forTelecommunications Economics, Regulatory Economics Series, (Kluwer AcademicPublishers, Boston, MA.)Black, F., Sc

46、holes, M., 1973. The pricing of options and corporate liabilities. Journal of PoliticalEconomy 81, 637-654.Dixit, A. K. and R. S. Pindyck, 1994. Investment Under Uncertainty (Princeton University Press,Princeton, NJ).Dixit, A.K. and R.S. Pindyck, 1995. The options approach to capital Investments,Har

47、vard Business Review, 73, 105-115.Hausman, J., 1998. Testimony before the California Public Service Commission, April 7.Hausman, J., 1997. Valuation and the effect of regulation on new services intelecommunications, Brookings Papers on Economic Activity: Microeconomics. (BrookingsInstitute, Washingt

48、on, D.C.)Hull, J.C., 2000. Options, Futures and Other Derivatives, 4th ed. (Prentice-Hall, UpperSaddle River, NJ).Luehrman, T. A., 1998a. Investment opportunities as real options: getting started on thenumber, Harvard Business Review, 76, 51-67.Luehrman, T.A., 1998b. Strategy as a portfolio of real

49、options, Harvard BusinessReview, 76, 89-99.NERA, 1999. Estimating the Long Run Incremental Cost of PSTN Access, final report forACCC Australian Competitive & Consumer Commission (London).Taylor, L.D., 1980. Telecommunications Demand: A Survey and Critique (Balinger PublishingCo., Cambridge, MA).Trig

50、eorgis, L., 1996. Real Options: Management Flexibility and Strategy in Resource Allocation(MIT Press, Cambridge, MA).The author would like to thank Gary Madden, Todd Strauss, and Wynne Cougill for their useful commentsand suggestions. The support of Curtin University of Technology, Perth, Australia

51、is also gratefullyacknowledged. The usual disclaimer applies.This paper is adopted from the authors book review of Trigeorgis (1996), Real Options: ManagementFlexibility and Strategy in Resource Allocation, Information Economics and Policy, Vol. 11, No. 2, July,1999.Copyright 2000 James Alleman. All

52、 Rights Reserved.翻译大意： 实物期权概述一 什么是实物期权?传统的估值方法一般采用企业现金流量折现法（DCF）。具体程序是，首先定义项目相关的现金流并对其作出估计预测，然后用资本资产定价模型(CAPM)计算项目的风险折现率，接着用得到折现率和现金流来计算项目的净现值，从而确定项目在经济上是否可行。DCF方法存在的问题:应用DCF对企业进行估值，隐含着这样的假设：决策只产生一个理想结果，无论形势如何发展，这种结果是肯定会发生的。这种隐含的假设将所有的未知信息简化为已知信息来处理，增大了决策的风险。为了弥补这种风险，DCF在计算过中采用更高的折现率，从而降低了企业的价值。这种简化

53、的另一个后果是忽略了未知信息中所蕴含的机会。而企业决策是分阶段进行的，在一个决策点，决策者要根据当时所掌握的信息以及以前各阶段决策的实际效果重新选择。而DCF没有考虑当环境变化时取消项目或扩张项目的情况，从而在高度不确定性环境下不能对企业进行正确的估值。引入金融理论针对这种情况，许多学者提出借鉴金融学中的期权理论来衡量这种管理者根据环境变化调整项目的弹性. 期权（Option）是指一种选择权，持有者通过付出一定成本而获得一种权利，在规定的时间内有权利但不负有义务（即可以但不是必须）按约定条件实施某种行为（如买卖某种资产.金融期权金融期权是指投资者按一定价格购买期权合约，进而获得在规定的时间内以

54、约定的价款买进或者卖出某种金融资产的权利，投资者可以在条件有利时实施该权利，也可以在条件不利时不实施该权利（放弃），即只有权利而无义务。实物期权一个投资方案其产生的现金流量所创造的利润，来自于目前所拥有资产的使用，再加上一个对未来投资机会的选择。也就是说企业可以取得一个权利，在未来以一定价格取得或出售一项实物资产或投资计划，所以实物资产的投资可以应用类似评估一般期权的方式来进行评估。同时又因为其标的物为实物资产，故将此性质的期权称为实物期权。它是金融期权理论在实物(非金融)资产上的扩展,它把金融市场的规则引入到企业内部战略投资决策中来。实物期权同期权一样是一种或有决策,因此其损益是非线性的,它

55、将随着决策变化而变化。 金融期权与实物期权比较项目金融期权实物期权标的股票、期货等金融商品实物资产、投资计划标的物现值金融商品目前价格投资计划未来现金流量现值标的物价值金融商品价格投资计划收益、实物资产价格履约价格期权契约上的执行价格投资计划预期总成本权利期有一定的到期日直到投资机会消失为止标的契约有无公开市场交易集中市场交易无实物期权作用:实物期权方法在企业价值评估、并购方式设计、项目评估与决策、企业投融资战略规划、最优投资规模的确定等方面为人们提供了新的思路和指导。目前实物期权方法在投资领域中的应用研究是最热门的前沿课题之一二 实物期权在通讯行业中的应用尽管实物期权理论已经广泛应用于许多行

56、业，但是至今仍未应用于通讯业。下面的分析将会证明实物期权理论运用到通讯业时机已经成熟。总体来说，实物期权理论在三个方面同通讯行业密切相关。1战略性规划在通讯业，战略性规划都是通过现金流量折现法对企业进行预算计划和假定性分析而发展起来的。然而由于价格弹性等其他很多不确定的经济因素都是晚于行业发展的。事实上，在垄断行业，战略性规划并不重要。时间在变化，所以我们必须不断的分析企业以便于新老电信公司可以长久经营下去。实物期权理论可以帮助企业分析这个问题。2评估许多企业通过计量经济理论来分析评估其假设行为，然而实物期权理论已经改变了这种看法，实物期权理论使得这种评估更加准确。举个例子来说，实物期权理论已

57、经改变了企业的赢亏平衡点。对于企业而言，如果使用实物期权理论，当获得的收入低于可变成本的时候，企业停止生产已经不在是最优的选择。原因在于，世界是在动态变化的，当整个经济处于繁荣期时，使得企业在市场上继续营业或许是最优的选择。此种情况下，停止营业会排除掉这种最优选择。应用动态的期货理论于传统经济理论当中，同时将财务理论融入模型当中，这样能够在很大程度上改变传统理论的输出结果。3 成本模型传统模型运用现金流量折现法，而通过实物期权方法已经证明这种方法会得出错误的结论。实物期权理论是服从概率分布的，可以很好的解释投资的不确定性，而这些特性都是现金流量折现法所缺乏的，因此随着实物期权理论的应用，评估分析能力被极大的提高了。三 案例分析一个私立发电厂拥有一台过时低效的发电涡轮机.它的运营可避免成本是44美元/兆瓦时,从理想的程度上说只有电力的市场价格超过这个水平才可以发电.发电场的发电能力是500兆瓦特,涡轮机还有三年的使用寿命.假设:不存在固定成本问题:我们将如何作出选择?1 以100万美元的残值处理发电涡轮机2 继续使用大概年前的涡轮机直至报废1使用传统预期净现值法的分析：要采取决策或决策，我们必须计算出采取决策的价值，并将于采取决策的价值进行对比。我们假设，持续经营发电厂的价值为未来