Customer Reviews

Real Options: Managerial Flexibility and Strategy in Resource Allocation

5 star:		(4)
4 star:		(6)
3 star:		(0)
2 star:		(0)
1 star:		(1)

 

 

This book is written by perhaps THE expert on real options. Dr. Trigeorgis walks the reader from traditional NPV through decision tree analysis, and finally through real options. Perhaps the most valuable discussions in the text concern the strategic and competitive ramifications of a real options mindset which traditional DCF apporaches do not capture. Highly recommended for academics and MBA finance professionals alike. Also serves as an excellent complementary text to other texts on the subject.

Unlike many other books about options, this one talks a lot about the practical qualitative implications of the options approach (and compares options to other decision tools such as decision trees). These sections are highly valuable. Like the other books on the subject, though, the bits with maths in will be incomprehensible to the general manager.

There is still room for a book less concerned with precise analysis that is theoretically correct and more concerned with practical real world problem solving. Trigeorgis doesn't get there, but comes closer than most.

This book is probably the best to get a complete picture of real options concepts. Even if the mathematical concepts included in it are difficult to grasp (particularly once one reach continuous time models), the qualitative explanations give lots of examples that help to understand what the models accomplish, if not how they do it. Interactions of real options with strategy and game theory are also presented, which helps get a feeling of what the practical applications might be.

Real Options is the study of how to value potential business based on the real options they create rather than on discounting a simple stream of (erroneously) forecasted cash flows. Any business venture can be seen as a tangible corollary to a financial option, most commonly the Call or Put Option. For example, when Toyota and Honda build electric-fuel hybrid cars, they are not counting on an immediate stream of cash flows from hybrid car sales. Instead they are establishing a "Real" American Call Option on the ability to go to full hybrid car production ahead of the competition when the market for such vehicles manifests itself. How much they spend on their hybrid car programs is determined by finding the value of this option.

Lenos Trigeorgis shows how this is done. Conceptually, one can follow it well enough, but Lenos is merciless with the math. Still, one can grasp the basic concept by studying this book. A good read on the subject.

A classic text on Real Option Theory. In comparison with Mr Copelands Text on Real Options, Trigeorgis has more depths, but Mr Copelands book is easier to read, as Copeland targets practitioners. The chapter on Real Options for the analysis of competetive strategies is worth reading, and much better than Mr Copelands remarks on that topic, but possibly not fully up to date. The future of real options seems to lie in their combination with game theory, CFROI and dynamic oligopolistic markets. Mr Trigeorgis describes that field of research in its baby stage, as the book is 6 years old, but his theories are still much better, than many other books on that topic.

Lenos Trigeorgis' Real Options is probably the best book on real options analysis ... a theoretically superior alternative to discounted cash flow for valuing business projects ... that has been published thus far. It has a nice balance between theory and practice. The Copeland and Antikarov book has way too many errors to live up to the hype of being a useful "practitioner's guide." People with financial or quantitative backgrounds should be able to utilize Prof. Trigeorgis' book for practical valuation applications.

Trigeorgis provides a rigorous treatment of the concepts that are required to facilitate understanding of RO. In fact, a section in Chapter 2 can serve as a reference for a half-semester course in corporate financial theory. Amram's book is a disappointment. Copeland's book is a good alternative for those that seek a readable introductory RO book. However, the edition that I got had numerous errors (check the book's website for corrections). Once you familiarize yourself with the concepts, upgrade yourself to the level of Trigeorgis.

I have not studied the book yet. However, I was expecting a more rigorous treatment of the subject.
Since the author is known as one of the best in the field, I was also expecting to see a very good intuition. And it is there in the book, as far as I can see. However, when I look at the technical sophistication, I ask the question: Does the book give all the details necessary to solve actual (and tough) problems on your own? I am not sure.

This is one of the first few books i reviewed during my recent research on real options. I would rate it as a more advanced text for those who are already familiar with real options and its ensuing mathematical formulation. Honestly it took me a while to figure out some of the maths ! Definitely not for the faint hearted.

I did not find this book hugely helpful. The explanations are just opaque enough to leave you frustrated that you have missed something. Ultimately this book is neither fish nor fowl: not deep enough for academic researchers and not practical enough for practitioners.