By mixing concepts from both game theoretic analysis and real options theory, an investment decision in a competitive market can be seen as a “game” between firms, as firms implicitly take into account other firms’ reactions to their own investment actions. We review several real option game models, suggesting which critical problems have been “solved” by considering game theory, and which sign...

As a way to value growth opportunities, real options have had a difficult time catching on with managers. Many CFOs believe the method ensures the overvaluation of risky projects. This concern is legitimate, but abandoning real options as a valuation model isn't the solution. Companies that rely solely on discounted cash flow (DCF) analysis underestimate the value of their projects and may fail...

We provide an appropriate comprehensive model for assessing the likely contribution of current US government programs to alleviate homeownership financial distress. In a simulation of five available mortgage distress termination options plus continuation and repayment, the HAMP program appears to foster mortgage mitigation, given our parameter value assumptions, primarily through enabling and e...

We examine the asset pricing implications of a neoclassical model of repeated investment and disinvestment. Prior research has emphasized a negative relation between productivity and equity risk that results from operating leverage when capital adjustment is costly. In general, however, expansion and contraction options affect risk in the opposite direction: they lower equity risk as profitabil...

This study examines the implications of the separation theorems in finance to shed light on how these theorems can be refined to accommodate real life financial applications and decision makings. We also generalize the financial theory of the firm by incorporating real options in the production function to accommodate the complexity of real world issues. This modified financial theory of the fi...

Using the tools of real-options theory, Farzin, Huisman and Kort (1998) investigate the optimal timing of technology adoption in a model in which there is ongoing technological progress and the "rm's investment decision is irreversible. When the "rm can switch technologies n(R times, Farzin et al. (1998) obtain the surprising result that the criterion for adopting a new technology derived from ...

Due to the rapid progress and adoption of information technologies, the decision making for technology investments has become very complex. Also, after the burst of the investment on information technologies (IT) bubble in 2000, companies and investors now require information systems decisions be based on demonstrable value creation that is aligned with the business mission and goals. In this c...

Real options theory has been advocated as a solution to IT investment problems with uncertainty around future outcomes and the inability of traditional financial measures to account for managerial flexibility. On the one hand, it is argued that real option analysis captures and formalizes managers’ intuition, thus creating a disciplined decision making process. On the other hand, the intuitive ...

The major US wireless operators already have announced their plans for evolution of their networks, but some uncertainties remain, such as emergence of new technologies (WiMAX and WLAN) and consolidation among operators (AT&T Mobile and Sprint Nextel). The paper proposes a real option based model for technology decisions and applies it to the US wireless industry as a case study. We also discus...

Data plays a critical role in organizations up to the point of being considered a competitive advantage. However, the quality of the organizations’ data is often inadequate, affecting strategic and tactical decision making, and even weakening the organization’s image. Nevertheless it is still challenging to encourage management to invest in data quality improvement projects. Performing a tradit...