• Industrial Engineering and Management Systems
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• v.10 no.2
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• pp.170-177
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• 2011

We present an improved binomial method for pricing financial deriva-tives by using cell averages. After non-overlapping cells are introduced around each node in the binomial tree, the proposed method calculates cell averages of payoffs at expiry and then performs the backward valuation process. The price of the derivative and its hedging parameters such as Greeks on the valuation date are then computed using the compact scheme and Richardson extrapolation. The simulation results for European and American barrier options show that the pro-posed method gives much more accurate price and Greeks than other recent lattice methods with less computational effort.

• Journal of Korean Institute of Industrial Engineers
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• v.29 no.2
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• pp.126-134
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• 2003

Among a variety of models proposed by so far to calculate the real options value when the investment decision about the underlying project may be delayed, the Black-Scholes and the binomial lattice models have been widely used and discussed by academics and practitioners. However these two models do not provide us with intuition into how it is constructed and what it does really mean. In this paper, we will therefore explore its components and practically more intuitive meaning. With the components explored, we developed the mathematical model to calculate the real options value and thus strategic net present value, based on the opportunity cost concept, for which the investment decision about the underlying project is postponed by one year. We will finally present a short illustrative example for readers better understanding on the model proposed in the paper.

• Journal of Korean Institute of Industrial Engineers
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• v.32 no.3
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• pp.180-190
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• 2006

We evaluate the economic value and the optimal investment timing of IMT-2000 in Korea, in the perspective of a service provider who owns the business license for IMT-2000, by using the real options analysis. The result clearly shows the project value with options is positive and delaying the investment is more favorable to the provider. Binomial lattice approach, in which we try to describe American call option and sequential compound option, and sensitivity analysis present the optimal decisions according to future states and enable the management to make decision strategically and proactively.

• Communications of the Korean Mathematical Society
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• v.28 no.2
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• pp.397-406
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• 2013

We present an improved binomial method for pricing European- and American-type Asian options based on the arithmetic average of the prices of the underlying asset. At each node of the tree we propose a simple algorithm to choose the representative averages among all the effective averages. Then the backward valuation process and the interpolation are performed to compute the price of the option. The simulation results for European and American Asian options show that the proposed method gives much more accurate price than other recent lattice methods with less computational effort.

• Journal of the Korean Chemical Society
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• v.58 no.6
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• pp.528-534
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• 2014

In some binary solution, closed miscibility loop of temperature-composition phase diagram occurs where both an upper critical solution temperature and a lower critical solution temperature exist. It is known that this phenomena occurs if specific interaction between molecules exists. There are several ways describing the specific interaction. In this work it is assumed that the total number of specific interactions is distributed according to binomial distribution. In this case, exact mathematical conditions for closed miscibility loop phase behavior are derived when the specific interaction is applied to regular solution theory, quasichemical theory and Flory-Huggins lattice theory. And we investigated the effect of parameters on the phase diagram. The phase diagram of water-nicotine is calculated and compared with experimental data.

• Proceedings of the Korea Technology Innovation Society Conference
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• 2002.05b
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• pp.181-198
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• 2002

This article describes a methodology for evaluating huge aerospace R&D investments using the real options pricing method. Option pricing has been proposed as a useful approach for modeling investment in R&D. Two important features of R&D investments are that an R&D project takes time to complete and that the outcome of R&D investments is highly uncertain. This makes the analysis of R&D investments difficult. Traditional tools for project evaluation, like IRR or the NPV, are inadequate for coping with the high uncertainty. Hence, In this article I propose a log-transformed binomal lattice method, and it will show that option pricing might be an adequate framework for evaluating such types of aerospace investments.

• KSCE Journal of Civil and Environmental Engineering Research
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• v.35 no.5
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• pp.1165-1171
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• 2015

Due to the increasing trend of operation and maintenance cost (O&M cost) of infrastructure, the accurate estimation of O&M cost is crucial part to the government. Recent literatures pointed out that gradual climate changes such as average temperature changes, average precipitation changes, and etc. have significant impact on infrastructure O&M cost. This research is intended to develop a long-term O&M cost prediction model of road facilities by considering the impacts of average temperature changes. For this end, the climate change scenarios of Intergovernmental Panel on Climate Change (IPCC)'s $5^{th}$ report are adopted to structure the impact of average temperature changes by using binomial lattice model. The proposed framework is expected to regional government in supporting decisions for road O&M cost.

• Proceedings of the Korean Operations and Management Science Society Conference
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• 2004.05a
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• pp.742-745
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• 2004

Most of options pricing theory including Black and Scholes continuous model and Cox, Ross, and Rubinstein(CRR)'s binomial lattice model were developed based on the notion that continually revised risk-free hedges involving options and stock should earn the risk-free interest rate. This notion is valid with the assumption that the investor's attitude toward risk is neutral. In reality, this assumption may be frequently violated. Therefore, Hodder, Mello, and Sick proposed the way to value real options using the risk-adjusted interest rate. However, they did not show how to derive the mathematical expression for it. In this paper, we will clearly present how to obtain the mathematical expression for the risk-adjusted interest rate for real options and demonstrate two numerical examples to show its applicability.

• Proceedings of the Korean Operations and Management Science Society Conference
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• 2003.05a
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• pp.620-627
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• 2003

The real option pricing theory has emerged as the new investment decision-making techniques superceding the traditional discounted cash flow techniques and thus has greatly received muck attention from academics and practitioners in these days the theory has been widely applied to a variety of corporate strategic projects such as a new drug R&D, an internet start-up. an advanced manufacturing system. and so on A lot of people who are interested in the real option pricing theory complain that it is difficult to understand the true meaning of the real option value. though. One of the most conspicuous reasons for the complaint may be due to the fact that there exit many different ways to calculate the real options value in this paper, we will present a replicating portfolio method. a risk-neutral probability method. a risk-adjusted discount rate method (quasi capital asset pricing method). and an opportunity cost concept-based method under the conditions of a binomial lattice option pricing theory.

• Journal of Construction Engineering and Project Management
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• v.3 no.1
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• pp.10-13
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• 2013

Determining on a particular construction method is typically decided in the initial phases of a project. However, changing conditions during actual construction may require a different method or technology to be employed. Providing an option for project managers to change construction provides flexibility that can increase value to the overall project. This research provides the ability to modify construction methods as a real option, which allows its value to be modeled. The research also formalizes a way to integrate a binomial lattice model with the Earned Value Method's S-curve. The integrated model provides a decision support tool that planners can use to determine whether to exercise the option depending on the status metrics provided by EVM.