154-0309/02 – Real Options Application (ARO)

Gurantor department	Department of Finance	Credits	3
Subject guarantor	doc. Ing. Miroslav Čulík, Ph.D.	Subject version guarantor	doc. Ing. Miroslav Čulík, Ph.D.
Study level	undergraduate or graduate	Requirement	Choice-compulsory
Year	5	Semester	winter
		Study language	Czech
Year of introduction	2005/2006	Year of cancellation	2009/2010
Intended for the faculties	EKF	Intended for study types	Master

Instruction secured by
Login	Name	Tuitor	Teacher giving lectures
CUL33	doc. Ing. Miroslav Čulík, Ph.D.

Extent of instruction for forms of study
Form of study	Way of compl.	Extent
Full-time	Credit and Examination	2+0

Subject aims expressed by acquired skills and competences

Aim of the course is to teach students to employ real option methodology in selected areas of financial decision-making. Course will enables the students: - to apply new approach for problem solutions of valuation and decisio-making, - to evaluate and compare its advantages in comparison to traditional methods, - to propose optimal decisions for a firm under the risk.

Teaching methods

Lectures

Summary

Real options is a flexible approach for decision making on real assets, where assets are valued by using financial option pricing models. The main idea relies on the possibilities to make future decisions with option characteristics and can be exercised under pre-specified conditions. It is necessary to identify these options, value them and comprise them into company decision-making process.

Compulsory literature:

DiLELLIO, James: Real Option Modeling and Valuation: A Decision Analysis Approach Using DPL and Excel. London: ‎ Independently published, 2022. 136 pp. ISBN 978-1521238592. MUN, Jonathan: Real Options Analysis: Tools and Techniques for Valuing Strategic Investments and Decisions with Integrated Risk Management and Advanced Quantitative Decision Analytics. London: ROV Press, 2019. 695 pp. ISBN 978-1734497359. MUN, Jonathan: Applied Analytical - Applied Project Management: Applying Monte Carlo Risk Simulation, Strategic Real Options, Stochastic Forecasting, Portfolio management, Project Management.‎ ‎New York: IIPER Press, 2020. 143 pp. ISBN 978-1734481150.

Recommended literature:

JACKSON, Liam, et al. Applied Analytical - Oil and Gas Decommissioning Risk Management: Applying Monte Carlo Risk Simulation, Strategic Real Options, Stochastic Analytics. London: IIPER Press, 2020. 266 pp. ISBN 978-1734481174. LARRABEE, T. a J. VOSS. Valuation Techniques: Discounted Cash Flow, Earnings Quality, Measures of Value Added, and Real Options. New York: Wiley, 2022. 624 pp. ISBN 978-1118397435. SCHONE, M. Real Options Valuation: The Importance of Stochastic Process Choice in Commodity Price Modelling. Berlin: Springer, 2022. 118 pp. ISBN 978-3658074920.

Additional study materials

Study supports in the EduDocs system

Way of continuous check of knowledge in the course of semester

E-learning

Other requirements

Prerequisities

Subject code	Abbreviation	Title	Requirement
154-0325	FM	Financial Models	Recommended

Co-requisities

Subject has no co-requisities.

Subject syllabus:

1. Introduction - option types, parameters, intrinsic value, payoff function, etc. 2. Traditional criteria in capital budgeting - NPV, IRR, payback period, profitability index, - inputs estimation (FCF, cost of capital) - advantages and shortcomings 3. Option valuation - discrete models (binomial, trinomial, multinomial) - continuous Black-Scholes model. 4. Real options - introduction, basic idea and principles - relation financial vs. real option - types of real options (underlying asset, exercise price, payoff function, decision function). 5. Real options valuation - application of discrete and continuous models for real options valuation, - impact of real options on project value. 6. Real option valuation - impact of the moment of real option exercise on project value, - portfolio of real options and its valuation. 7. Case study - solution of illustrative example 8. Real options valuation by applying simulation techniques 9. Case study - solution of illustrative example 10. Real option application for company valuation - theoretical fundamentals - equity valuation as a real option 11. Case study - solution of illustrative example 12. Comprehensive case study solution 13. Comprehensive case study solution 14. Results comparison

Conditions for subject completion

Full-time form (validity from: 1960/1961 Summer semester)

Task name	Type of task	Max. number of points (act. for subtasks)	Min. number of points	Max. počet pokusů
Exercises evaluation and Examination	Credit and Examination	100 (145)	51	3
Examination	Examination	100	0	3
Exercises evaluation	Credit	45	0	3

Mandatory attendence participation:

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Conditions for subject completion and attendance at the exercises within ISP:

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Occurrence in study plans

Academic year	Programme	Branch/spec.	Spec.	Form	Study language	Tut. centre	Year	Type of duty
2008/2009	(N6202) Economic Policy and Administration	(6202T010) Finance	(00) Finance	P	Czech	Ostrava	2	Choice-compulsory	study plan
2008/2009	(M6202) Economic Policy and Administration	(6202T010) Finance		P	Czech	Ostrava	5	Choice-compulsory	study plan
2007/2008	(N6202) Economic Policy and Administration	(6202T010) Finance	(00) Finance	P	Czech	Ostrava	2	Choice-compulsory	study plan
2007/2008	(M6202) Economic Policy and Administration	(6202T010) Finance		P	Czech	Ostrava	5	Choice-compulsory	study plan
2006/2007	(N6202) Economic Policy and Administration	(6202T010) Finance	(00) Finance	P	Czech	Ostrava	2	Choice-compulsory	study plan

Occurrence in special blocks

Block name	Academic year	Form of study	Study language	Year	W	S	Type of block	Block owner

Assessment of instruction

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