Real Options Analysis: Tools and Techniques for Valuing Strategic Investments and Decisions (Book and CD ROM) [Hardcover]

Johnathan Mun (Author)

Book Description

ISBN-10: 047125696X | ISBN-13: 978-0471256960 | Publication Date: September 20, 2002 | Edition: 1

Cutting-edge information on the valuation and application of real options
Most investors and risk managers are familiar with financial options. But the real option structure is embedded in billions of dollars of stocks traded every day, and in billions of dollars of strategic or investment decisions made by many companies. Real options are a useful tool to guide a firm's strategic planning, and can create or enhance a firm's value.
Real Options Analysis provides a revolutionary approach to evaluating and valuing capital investment strategies by taking into consideration the real options inherent in the strategic decision-making process. This book provides readers with a qualitative and quantitative description of real options, the methods used in solving real options, why and when they are used, and the applicability of these methods in decision-making. In addition, multiple business cases and real-life scenarios are discussed. This includes presenting and framing the problems, as well as the introduction of a stepwise quantitative process developed by the author for solving these problems using the different methodologies inherent in real options-with the assistance of Real Options software powered by Crystal Ball(TM), which is included on the companion CD-ROM. With technical presentations of models and approaches backed by theoretical and mathematical justifications, Real Options Analysis is one of the most comprehensive guides available on real options.

Editorial Reviews

From the Inside Flap

The volatile economy has presented new challenges to the corporate decision-maker, and real options are poised to become the key management tool for today's and tomorrow's businesses. Real options analysis is an accurate method for estimating the value of strategic investments, and it will continue to be utilized in situations where management has flexibility in large capital budget decisions with high uncertainty.

Real Options Analysis provides you with a comprehensive overview of the real options methodology and explores the tools and techniques inherent in this method that will allow you to efficiently value strategic investments and decisions. It examines both the qualitative and quantitative aspects of real options, the methods used in valuing real options, why and when they are used, as well as the applicability of these methods in decision-making.

Real options expert Johnathan Mun will help you understand and implement real options analysis under a variety of circumstances and over a wide range of industries, from pharmaceutical, oil, and gas to manufacturing and technology. Mun first looks at the qualitative nature of real options and provides actual business cases and scenarios of real options in the industry, as well as high-level explanations of how real options provide much-needed insights for decision-making. He then focuses on quantitative analysis, and reveals the power of Crystal Ball(r) software for real options analysis through the book's companion CD-ROM. This CD-ROM demonstrates a set of sixty-nine models in the Real Options Analysis toolkit software, Crystal Ball(r) Monte Carlo simulation software, and a series of example options analysis spreadsheets that will allow you to perform real options analysis like never before.

From the basics of expansion and switching options to advanced options problems such as valuing timing options calculated with stochastic optimization, Real Options Analysis is a complete and accessible guide to the uses of real options in the decision-making process. Through expert advice, in-depth case studies, mathematical formulae, real-world scenarios, real options software, and end-of-chapter questions, Real Options Analysis provides serious insights into the understanding and application of real options when valuing strategic investments and decisions.

From the Back Cover

Praise for Real Options Analysis

"This book is a must-have and must-read . . . Mun's new book is a refreshing, cutting-edge look at a powerful new decision-making process . . . it isn't often you can truthfully say a book breaks new ground, but [this book] has certainly done that."
-Glenn G. Kautt
President, Monitor Group, Inc. (USA)

"Many books on real options can be intimidating. Mun offers a pragmatic, reliable, and entertaining guide. Complex concepts and formulas are brilliantly interspersed with well-chosen examples and step-by-step walk-throughs from a variety of industries."
-Shota Hattori
President and CEO, Kozo Keikaku Engineering, Inc. (Japan)

"The clarity and comprehensive coverage makes it one of the best guides for all practitioners . . . coupled with state-of-the-art financial tools on CD-ROM."
-Michael Sim
Partner, Moores Rowland International (Hong Kong)

"Mun certainly has earned the reputation of being an expert on the subject . . . consultants, analysts, decision-makers and engineers will be all over this book and its software."
-Phyllis Koessler
Managing Director, Koessler and Associates (Switzerland)

"Finally, a real options analysis book that is technically sophisticated enough to be useful, and practically written so that it can actually be used. It is destined to become the handbook of real options."
-A. Tracy Gomes
President, Intellectual Property Economics, LLC (USA)

See all Editorial Reviews

Product Details

• Hardcover: 416 pages
• Publisher: Wiley; 1 edition (September 20, 2002)
• Language: English
• ISBN-10: 047125696X
• ISBN-13: 978-0471256960
• Product Dimensions: 9.4 x 6.5 x 1.3 inches
• Shipping Weight: 1.5 pounds
• Average Customer Review: 4.8 out of 5 stars  See all reviews (15 customer reviews)
• Amazon Best Sellers Rank: #1,748,321 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

118 of 119 people found the following review helpful:

5.0 out of 5 stars This book is made to trick you to buy the software, April 10, 2003

By A Customer

This review is from: Real Options Analysis: Tools and Techniques for Valuing Strategic Investments and Decisions (Book and CD ROM) (Hardcover)

Mun's book is excellent, but you should not buy it unless you are willing to buy the...software used extensively in the book.

The CD-ROM enclosed with "Real Option Analysis" includes

- the Real Option Analysis Toolkit (demo), which expires one week after installation.

- the Crystal Ball Software, which expires one mounth after installation.

This means that you have to buy the expensive software one week after installing the demo to have any benefit from the book...The book is a trick to get your to buy the...software -and it is a shame that you get no information of this before you find out that the demo has expired!

9 of 9 people found the following review helpful:

4.0 out of 5 stars On average: a good book, July 29, 2004

By 

Carlo Arioli (Italy) - See all my reviews

This review is from: Real Options Analysis: Tools and Techniques for Valuing Strategic Investments and Decisions (Book and CD ROM) (Hardcover)

This was my first book on Real Options. After this, I complemented my knowledge with more accurate researches on the theoritic foundations on the subject (eg. Trigeorgis and Copeland).
What I liked of this text is that it was a soft landing into the Real Option world, with a simple and easily understandable description. Its major pro is to present transparently the basics of a concept that is often approached at a too high and formal level.
What I did not like is the fact that few chapters at the end were not really useful but full of stuff and formulas with no explanations that cannot practically be used. I had the sensation they were out of place, since I could grasp their meaning only after passing to more comprehensive books.
One more criticism is that you don't understand the effect of the difference between private and public risk in real options evaluation as you do with other texts. However, I still consider this the book where I formed my basics before being able to master some other more detailed book (but also more difficult to master). The Crystall-Ball package was also a nice surprise. At the end, if you consider the price and the content it was surely good value for money even though it's not a masterpiece.

12 of 13 people found the following review helpful:

4.0 out of 5 stars decent read on real options, July 6, 2003

By 

Patrick K. Rutherford (Atlanta, GA) - See all my reviews
(REAL NAME)   

This review is from: Real Options Analysis: Tools and Techniques for Valuing Strategic Investments and Decisions (Book and CD ROM) (Hardcover)

decent read... did a good job on explaining practical uses of real options. would have been better if not so much written promoting the use of crystal ball. overall, happy to see that minimizes coverage on replicating portfolios and focuses on risk neutral prob. i recommend this book, especially if mba student and brief coverage in intro class of real options leaves you interested / unfulfilled.