154-0309/03 – Real Options Application (ARO)

Gurantor departmentDepartment of FinanceCredits3
Subject guarantordoc. Ing. Miroslav Čulík, Ph.D.Subject version guarantordoc. Ing. Miroslav Čulík, Ph.D.
Study levelundergraduate or graduateRequirementChoice-compulsory
Year2Semesterwinter
Study languageCzech
Year of introduction2009/2010Year of cancellation
Intended for the facultiesEKFIntended for study typesFollow-up Master
Instruction secured by
LoginNameTuitorTeacher giving lectures
CUL33 doc. Ing. Miroslav Čulík, Ph.D.
Extent of instruction for forms of study
Form of studyWay of compl.Extent
Full-time 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:

MUN, J. (2005). Real Option Analysis. Tool and Techniques for Valuing Strate-gic Investments and Decisions. 2nd Ed. New Jersey: Wiley. TRIGEORGIS, L. (2000). Real Options in Capital Investments: Models, Strate-gies and Applications. London: Praeger Westport. TRIGEORGIS, L., SCHWARTZ, E. S. (2001). Real Options and Investments under Uncertainty. Cambridge: MIT Press.

Recommended literature:

BRENNAN, M. J., TRIGEORGIS, L. (2000). Project Flexibility, Agency and Competition: New Developments in the Theory and Application of Real Options. London: Oxford University Press. DIXIT, A. K., PINDYCK, R. S. (1994). Investment under Uncertainty. New York: Princeton University Press. MUN, J. (2010). Modeling Risk: Applying Monte Carlo Risk Simulation, Strate-gic Real Options, Stochastic Forecasting, and Portfolio Optimization. 2nd Ed. New Jersey: Wiley.

Way of continuous check of knowledge in the course of semester

E-learning

Další požadavky na studenta

There are no special requiremets on students to be satisfied.

Prerequisities

Subject codeAbbreviationTitleRequirement
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: 2008/2009 Winter semester)
Task nameType of taskMax. number of points
(act. for subtasks)
Min. number of points
Examination Examination 100  51
Mandatory attendence parzicipation:

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Occurrence in study plans

Academic yearProgrammeField of studySpec.FormStudy language Tut. centreYearWSType of duty
2019/2020 (N6202) Economic Policy and Administration (6202T010) Finance P Czech Ostrava 2 Choice-compulsory study plan
2018/2019 (N6202) Economic Policy and Administration (6202T010) Finance P Czech Ostrava 2 Choice-compulsory study plan
2017/2018 (N6202) Economic Policy and Administration (6202T010) Finance P Czech Ostrava 2 Choice-compulsory study plan
2016/2017 (N6202) Economic Policy and Administration (6202T010) Finance P Czech Ostrava 2 Choice-compulsory study plan
2015/2016 (N6202) Economic Policy and Administration (6202T010) Finance P Czech Ostrava 2 Choice-compulsory study plan
2014/2015 (N6202) Economic Policy and Administration (6202T010) Finance P Czech Ostrava 2 Choice-compulsory study plan
2013/2014 (N6202) Economic Policy and Administration (6202T010) Finance P Czech Ostrava 2 Choice-compulsory study plan
2013/2014 (N6202) Economic Policy and Administration (6202T010) Finance (00) Finance P Czech Ostrava 2 Choice-compulsory study plan
2012/2013 (N6202) Economic Policy and Administration (6202T010) Finance (00) Finance P Czech Ostrava 2 Choice-compulsory study plan
2011/2012 (N6202) Economic Policy and Administration (6202T010) Finance (00) Finance P Czech Ostrava 2 Choice-compulsory study plan
2010/2011 (N6202) Economic Policy and Administration (6202T010) Finance (00) Finance P Czech Ostrava 2 Choice-compulsory study plan
2009/2010 (N6202) Economic Policy and Administration (6202T010) Finance (00) Finance P Czech Ostrava 2 Choice-compulsory study plan

Occurrence in special blocks

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