Customer Reviews

Investment under Uncertainty

5 star:		(9)
4 star:		(2)
3 star:		(0)
2 star:		(3)
1 star:		(2)

 

 

Investment Under Undertainty by Avinash Dixit and Robert Pindyck has been an important book in the 1990's because it introduced a relatively new subject to a new and eager audience when there was little else available outside of original research papers. Many of us are grateful to the authors for this introduction. However, newcomers should be aware that they omit large and crucial details of implementation [example: chapter 4, section 1H, pages 110-112 including the graphs on page 111: a newcomer will be lost; if you wait until the appendix to chapter 10, on numerical solution, then you may or may not note the printing errors]. The book is not for the faint-hearted beginner; even the simplest material, such as valuation of a perpetuity (see Corporate Finance by Brealey & Myers - very easy) occurs in a form which the beginner or skim-reading manager might not readily recognise (chapter 5, section 1A, pages 138-139); but then this book is not for them.

See also Real Options by Lenos Trigeorgis, who writes as if he keenly wants you to have fast access to his subject. For someone writing purely on the mathematical finance aspects, read anything by Paul Wilmott, who is clearly both clever and an exceptional educator

Let me say that this is not a book for those looking for investment advice or get-rich-quick schemes. It is also not a book for those who think that an MBA and an HP12C are all you need to understand the basic theory behind investments, options, etc.

It is a mathematical subject...and to those with a good mathematical background, the book is remarkably well-organized and easy to understand. I found this book to be very helpful in my research.

When searching for a framework for my PhD, I encountered Dixit's 1991 exposition on investmetn under uncertainty, in Journal of Economic Perspective. I was immeadiately hooked on option theory and its applications. Both authors of this splendid book are authorities in this field. The book is ideal for advanced MBA students with some mathamatics background. It is also suitable for PhD students in economics and finance. However students with math or engineering backgrounds may also benefit from reading this book.

As this book has repeatedly demonstrate, investmet in a uncertain world involves exercising an option. I mat asure the readers and buyers alike, investing in this book will yield high returns for your time and money.

Let me start off by saying that this is an excellent book. The authors are very clear writers and the text is easy to follow. I think there are two types of readers that can benefit from reading this book. First, anyone that wants to learn about real options, especially the theory behind it should read this book. Dixit and Pindyck do a wonderful job explaining the different options embedded in real projects. Second, anyone that wants to learn how to use dynamic programming or contingent claims analysis to solve real options problems should read this book. In my opinion, Dixit and Pindyck have the best explanation of what to expect and how to solve the common specifications found in real options problems. They show problems that make use of different stochastic processes, such as geometric Brownian motions, mean reverting processes, or Poisson jump processes, and show how some of these can be solved analytically. Other books do not delve into a lot of detail on finding analytical solutions to the problems and merely assume that readers would be able to figure out their calculations. In addition, there is a short section (might even have been an appendix) that briefly discusses how numerical solutions work.

After reading a number of real options texts available in the market, I am glad that I still took the time to read this book. This is probably the most important real options book out there. Although I think every one interested in real options should read this, I think the ones that are particularly interested in more applied real options are better served by a book like Copeland and Antikarov's Real Options book and Copeland's Valuation book. These books are more geared towards solving valuation problems using binomial trees, which for practical purposes would most likely be the approach used (as most real world problems would probably need numerical solutions anyway).

This book covers a topic, based on options valuation, that should begin to have a huge impact on how companies can manage to succeed when they must function in a world where strategies must be made in the face of large risks, with large potential payoffs and losses at stake. I was challenged and rewarded many times.

My only concern is that, as academics, the authors leave much to the reader to adapt knowledge from their examples into more pragmatic contexts. But as far as I know, there are no books in this area yet that provide a more simplified, rule-of-thumb type approach to using options in analyzing the value of business opportunities.

A lifetime book, a must for people interested in the modern "real options approach". Thorough and very didatic book, the maths level is far easier than Duffie's books, for instance. Requires differential calculus but at undergraduated engineering level. Previous knowledge of stochastic calculus and optimization under uncertainty are not required because there are two excellent chapters where the authors explain these tools in a concise format. For serious students, researchers and practitioners in capital budgeting, financial economics and investment theory. Comprehensive industrial applications models of practical importance, with several numerical results throughout charts and tables, makes this book valuable for capital budgeting consultants. In textbook format, for people interested in a deep understanding of the models, not only in rules of the thumb or ease advices. The best choice for graduated level courses, but some chapters also can be used for MBA courses, at least as complementary text. A born classic book!

For anyone interested (seriously) in investment under uncertainty (aren't most of the investments such) this is a must have. But a few words of caution though. The book is not easy to read and follow if you don't have working knowledge of calculus, differential equations, numerical analysis (finite differences) and probability theory to a lesser degree.

The book actually summarizes the field of investment under uncertainty up to the point when it was written (early 90s): basically it collects journal articles published in this area and organizes then in logical manner. But it also does more than just collecting articles: it emphasizes important points in each of them and omits irrelevant ones. It also adds important segments to bridge the gap between the articles. In the first few chapters authors give mathematical preliminaries (in my opinion you should look elsewhere if the maths is unknown to you but once you get the hold of it, you will appreciate their exposition as it is very concise and relevant to the issues in the book). In the rest of the chapters authors build the idea of investment under uncertainty starting with simple and moving on to more complicated examples.

So who could use this book? Besides academics, people working on investment analysis in capital intensive industries (energy, RnD, real estate, etc - engineers might find this book very useful: Pindyck by the way has a degree in electrical engineering and Dixit in math). Coming from the energy sector I always felt something was wrong with traditional NPV analysis. Now I know what the solution is: use real options.

Overall, the book is worth every second you invest in it.

This is not a text for lightweights. Investment Under Uncertainty is a solid economic text, covering all essentials of optimization. This text is useful in an upper-level college course.

Comprehensive book on "real" investment, thorough but didactic, explains and extends the modern "real options" theory. I read twice the book and it is really a "must" for serious students/researchers/profissionals working with economic evaluation of projects.

I think this book is quite a good overview on the modern financial subject. I myself am not a finance people but can grasp some ideas based on thier mathematic equivalent to my field study. [Brownian Motion, Stochastic Process, Random Walk etc.] It's amazing for me to link my background in Polymer Science to this new area quite well. [I observed that there is a new area called 'Econophysics'.. perhaps I am the people in this caterogy]

OK... this book is not for a people who need a 'recipe' to make money. It's a good book for people who love to learn a new thing. I think a researcher from other area like Physics, Math/Stat or other academic discipline will find something useful for your starting point of a new area of finance.

King+