Journal of the Korean Operations Research and Management Science Society (한국경영과학회지)

The Korean Operations Research and Management Science Society (한국경영과학회)
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Optimal Investment Decision Timing Model Using Real Options Approach

실물 옵션을 이용한 최적 투자 의사결정 시기 선택 모형

  • Published : 2001.12.01
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Abstract

Net Present Value (NPV) criterion has been the most widely used criterion to evaluate investment opportunities. However, the analysis based on the NPV criterion falls to consider the managerial flexibility of deferring decisions until major uncertainty is resolved. Recently, real options method attracted a lot of attention as a Powerful approach to address the problem. If investment decision is deferred, the value of the investment opportunity increases but opportunity cost increases at the same time. Therefore, it is important to decide the optimal timing how long the decision can be deferred. In this paper, we developed a model deciding the optimal decision timing. Using the real options approach, the model derived the optimal deferring time until a decision is made. Then, the model was applied to a Korean mobile telecommunications company who wants to invest on the wireless resale business. We believe that this model would be very useful to overcome the problem of NPV decision criterion. With this approach, we can make contingent decisions based on the observation of uncertainly resolutions.

Keywords

References

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