Portfolios of real options
type: Item
instance of: scholarly article
title: Portfolios of real options
zbMATH Open document ID: 1161.91003
DOI: 10.1007/978-3-540-78299-5
author: Rainer Brosch
published in: Lecture Notes in Economics and Mathematical Systems
publication date: 2008-07-08T00:00:00Z
review text: The book provides a rigorous valuation framework for portfolios of real options, that is of corporate investment decisions having a real asset as underlying asset. The author develops a modeling approach for dynamic investment problems, where limited resources are allocated to interacting risky projects over time, subject to constraints. The model is set up as a multi-dimensional real options analysis problem based on \(n\) underlying assets and their joint behaviour. The modeling of the underlying assets is flexible and allows for changes in the characteristics of these assets. The work is structured on 6 chapters. The first chapter is an introductory chapter, in which the main results and contributions and the questions to be answered in the following chapters are highlighted. Chapter 2 motivates the portfolio perspective on real options. The concepts of real option and portfolio of real options are introduced here, emphasizing similarities and differences with the related financial concepts. The third chapter contains a literature review of the relevant strands which cover financial portfolio theory, corporate capital budgeting and financial and real options theory. The main contribution of this work is presented in Chapter 4. This chapter contains the development of the general model formulation. Firstly, a discussion on the key model features that are to be included is made. The model is built up successively, using a binomial option pricing model with one underlying asset, then expanded to a multinomial option pricing model with two underlying assets, which is finally generalized to \(n\) underlying assets. The chapter concludes with a discussion on the model features and possible extensions. Chapter 5 is dedicated to the numerical analysis of the model, studying the effects that constraints, volatility, correlation and starting values might have on the portfolio. Some illustrative examples are also presented here. In the final chapter, the main results are su…
reviewed by: Iulian Stoleriu
Mathematics Subject Classification ID: 91-02
Mathematics Subject Classification ID: 91B28
zbMATH DE Number: 5298831
zbMATH Keywords: real option
zbMATH Keywords: portfolio
zbMATH Keywords: multinomial option pricing model
zbMATH Keywords: dynamic investment problem
MaRDI profile type: Publication
full work available at URL: https://doi.org/10.1007/978-3-540-78299-5
OpenAlex ID: W391666561
description: scientific article; zbMATH DE number 5298831