The application of real options analysis to information technology investment evaluation problems recently has been proposed in the IS literature by Dos Santos (1991), Kambil et al. (1993), Kumar (1996), Chalasani et al. (1997), and Taudes (1998). The research reported on in this paper illustrates the value of applying real options analysis in the context of a case study involving the deploymen...

An adjusted Black-Scholes pricing formula is derived in this paper. By separating risk and uncertainty through the robust control technique, we find that uncertainty as well as risk raises the management’s subjective evaluation of real options. We suggest a simple method to filter the risk of the project and to acquire a more reliable value of real options without the influence of uncertainty. ...

This work extends earlier work on software upgrades as well as research on real options and IT investment. We consider a two-period model with one software provider who develops and releases a software product to the market. The result shows that the profit from the upgrade policy increases when the market size uncertainty increases. The option value of upgrade is higher when there is more mark...