Capital Budgeting, Project Selection, and Performance Evaluation - Chapter 5 Retelling
Book: Structured Finance and Insurance: The ART of Managing Capital and Risk Author: Christopher L. Culp Publisher: Wiley Finance, 2006 ISBN: 978-0-471-70631-1
Book: Structured Finance and Insurance: The ART of Managing Capital and Risk Author: Christopher L. Culp Publisher: Wiley Finance, 2006 ISBN: 978-0-471-70631-1
Every chapter so far has been about financial options. Contracts you buy and sell in markets. But the word “option” just means a choice, and choices show up everywhere. Should you shut down a factory that is losing money? Should you invest in a project now or wait? Should you suspend production when prices drop and restart when they recover? Chapter 73 of Wilmott’s book shows that the same math we use for financial derivatives can answer these questions. This is the world of real options.