To date, most applications of real options theory (ROT) in outsourcing literature are modeled from the clients’ side. Little attention has been paid to vendors’ options in outsourcing. In this article, we study outsourcing from the vendors’ perspective by analyzing vendors’ value of waiting. The contribution of our research to the literature lies in our analysis of a model that compensates for ...

The Real Options framework has been proposed as an effective tool to evaluate uncertain R&D projects because it can capture asymmetric upside potentials. We show in a simple model that established options theory understates the value of an R&D project if it does not account for corrective action that management can take during the project. The model supports intuition from options theory that v...

Real options theory suggests that managerial flexibility embedded within irreversible investments can account for a significant value in project valuation. Although the argument has become the dominant focus of capital investment theory over decades, yet recent survey literature in capital budgeting indicates that corporate practitioners still do not explicitly apply real options in investment ...

The investment interests in the electricity industry are transmitted through various mechanisms to other economic activities. This paper considers methods for esteeming the adaptability of demand-side response (DSR) in its capacity to react to future uncertainties. The capacity to evaluate this adaptability is particularly critical for vitality frameworks speculations given their extensive and ...

With a rich fare of localized content, but limited regional media outlet channels, mobile content generates new business opportunities for Media News, a small media company with considerable growth potential. Two business models are considered: partnering with wireless service providers and strategic alliances with mobile content syndicators. First, the models are evaluated based on their resou...

This paper develops a framework to link the expected utility analysis to real options models in order to capture the joint effects of risk aversion and irreversibility associated with real investments. It aims at modifying the theory of investment under uncertainty by incorporating decision makers’ risk preferences and allows explicitly analyzing the impacts of risk aversion, uncertainty and ir...

We apply a utility–based method to obtain the value of a finite–time investment opportunity when the underlying real asset is not perfectly correlated to a traded financial asset. Using a discrete–time algorithm to calculate the indifference price for this type of real option, we present numerical examples for the corresponding investment thresholds, in particular highlighting their dependence ...

99 words) To be relevant to a firm a real option needs to fit into a theory of the firm explaining its existence, exercise conditions and value. We make a step toward an option based-theory of the firm by describing the emergence of a firm’s options and the strategic building of new competences for exercising these options. We explain the creation of a real option as an entrepreneurial process ...