• Environmental and Resource Economics Review
• /
• v.27 no.4
• /
• pp.639-666
• /
• 2018

This paper analyses the investment options of groundwater development project under water price uncertainty. The optimal investment threshold price which trigger the investment are calibrated base on monopolistic real options model. Stochastic dynamic model is set to reflect the uncertainty of water price which follows the GBM (Geometric Brownian Motion) process. Our finding from non-cooperative investment decision model is that uncertainty of water price could deter the groundwater investment by considering the existence of option values. For policy markers, it is easy to manage 'charges for utilization of groundwater' rather than 'performance guarantee ratio' when managing groundwater investment with pricing policy. And it is necessary to make comprehensive and well-designed policies considering the characteristics of regional groundwater reservoir and groundwater developers.

• Journal of Korean Society for Quality Management
• /
• v.36 no.3
• /
• pp.76-86
• /
• 2008

This paper examines when a consumer in existent telecommunication 2G applies to new telecommunication service 3G from the viewpoint of an option pricing theory. To improve telecommunication quality of service, the consumer applies to 3G. The application means an exchange of 2G for 3G with extra costs such as searching and conversion costs. Since the option to exchange is a right that the consumer can exercise or not, application to 3G is deemed an exercise of the option to exchange at most suitable value of the option. The timing to exercise the option depends on the extra costs and the additional communication benefit from new telecommunication quality of service. These affect an optimal timing to apply to 3G. The optimal applying or switching timing to 3G is when an economic value of the option to exchange is equal to an economic value of the extra costs plus the additional telecommunication quality from new telecommunication service. The option analysis used in this paper is applicable to various industries.

• Korean Journal of Construction Engineering and Management
• /
• v.15 no.1
• /
• pp.111-121
• /
• 2014

The Clean Development Mechanism (CDM) allows New & Renewable Energy projects to make additional income by selling CER's, which represent the amount of Green House Gases(GHG) that is reduced in the project. However, forward contracts used to hedge fluctuating market prices does not allow projects to sell CER's at a premium. As an alternate approach to maximize CER revenue, CER's are modeled as a 'real option', in which CER's are sold only above the desired sales price. Using the Binomial Option Pricing model, the resultant lattices are used to determine whether to sell, defer or abandon the option at individual nodes. Overlaying Pascal's Triangle on the lattices also enabled the calculation of the annual probabilities for deferring CER sales without incurring downside losses. Application to an actual Landfill Gas project showed increased overall NPV, and that CER sales could be deferred at a maximum of 2 years. The proposed framework allows transparency in the analysis and provides valuable and strategical information when making investment decisions related to CER sales of CDM projects.

• Journal of Korea Technology Innovation Society
• /
• v.14 no.3
• /
• pp.578-598
• /
• 2011

This study estimates the value of photovoltaic core material technology, which is getting attention as a clean energy source. The estimation is based on the real option pricing model (ROPM). This study has two main contributions. The first is in the methodology. The process of modeling volatility, which is the most complicated stage in ROPM, is greatly simplified by using the stock price as a covariate representing the volatility of the real option's basic asset. The second contribution is the application of technology. In this study, the economic value of poly-silicon, a core material in the photovoltaic industry and recently surging in demand, is evaluated as a manufacturing technology. In a case study of a company in the photovoltaic industry, the stochastic process of a basic asset follows geometric Brownian motion (GBM), and the option value of firm A's poly-silicon manufacturing technology is estimated at 3.4 trillion won.

• Journal of the Korea Academia-Industrial cooperation Society
• /
• v.12 no.7
• /
• pp.3016-3021
• /
• 2011

While there is ample information on the investment plans about Korea's selected new growth businesses, it is hard to find any analysis on the valuation of the projects. In this paper, I intend to do a valuation for the three particular technologies, which are solar cell, automotive battery, and bio-pharmaceutical, based on compound option model so that the valuation can capture not only the expected net cash flow but also the value originated from the flexibility of the decision maker. In addition, the real option pricing theory is reviewed and its practical limitations are thoroughly investigated.

• Journal of Korea Technology Innovation Society
• /
• v.20 no.3
• /
• pp.732-753
• /
• 2017

Recently, when evaluating the technology values in the fields of biotechnology, pharmaceuticals and medicine, we have needed more to estimate those values in consideration of the period and cost for the commercialization to be put into in future. The existing discounted cash flow (DCF) method has limitations in that it can not consider consecutive investment or does not reflect the probabilistic property of commercialized input cost of technology-applied products. However, since the value of technology and investment should be considered as opportunity value and the information of decision-making for resource allocation should be taken into account, it is regarded desirable to apply the concept of real options, and in order to reflect the characteristics of business model for the target technology into the concept of volatility in terms of stock price which we usually apply to in evaluation of a firm's value, we need to consider 'the continuity of stock price (relatively minor change)' and 'positive condition'. Thus, as discussed in a lot of literature, it is necessary to investigate the relationship among volatility, underlying asset values, and cost of commercialization in the Black-Scholes model for estimating the technology value based on real options. This study is expected to provide more elaborated real options model, by mathematically deriving whether the ratio of the present value of the underlying asset to the present value of the commercialization cost, which reflects the uncertainty in the option pricing model (OPM), is divided into the "no action taken" (NAT) area under certain threshold conditions or not, and also presenting the estimation logic for option values according to the observation variables (or input values).

• Asian Journal of Innovation and Policy
• /
• v.6 no.2
• /
• pp.225-244
• /
• 2017

When evaluating the economic value of technology or business project, we need to consider the period and cost for commercialization. Since the discounted cash flow (DCF) method has limitations in that it can not consider consecutive investment or does not reflect the probabilistic property of commercialization cost, we often take it desirable to apply the concept of real options with key metrics of underlying asset value, commercialization cost, and volatility, while regarding the value of technology and investment as the opportunity value. We at this moment provide more elaborated real options model with the effective region of volatility, which reflects the uncertainty in the option pricing model (OPM).

• 한국경영정보학회:학술대회논문집
• /
• 2008.06a
• /
• pp.454-471
• /
• 2008

This study suggests the dynamic pricing model which reveals the organic relationship between ASP (Application Service Provider) price and the related factors, using system dynamics methodology. Basically, we applied the law of supply and demand for analyzing price changes. Then, we deducted ASP price, focusing on fixed cost and variable cost. We also researched the customer's buying behavior according to version differentiation policy. In the version policy, we set up the proposition about customer's satisfaction and willingness-to-pay, using option system. As a result, this research designed the simulation model which analyzes the changes of the sales according to version differentiations and customer's willingness-to-pay. Through this research, we can find effective version differentiation strategies. This paper also found that the larger the number of package, the greater the demand and customer's willingness-to-pay. The increase of the number of package causes the increase of the sales. The increase of the sale is not exactly relative to the number of package. Drawing S-curve, the sales was increased. This dynamic pricing model suggests the ground that the ASP price changes based on the existing version differentiation theory and the demand of customers can affect the changes of the sales. We expect that this model suggests a clear standard of ASP pricing by combining real cases.

• The Korean Journal of Financial Management
• /
• v.20 no.1
• /
• pp.305-329
• /
• 2003

This work analyzes the influence of the dollar and yen currency on the rate of return of the individual firms and its symmetries based on the data from Jan. 5 1987 to Dec. 28, 2001. GARCH and autoregressive error models were used for on the daily data, due to the heteroscedascity and autoregression of the error terms, and as for the monthly data, this paper follows the autoregressive error models. Daily data fumed out to be a better explanatory variable in detecting exchange rate exposure, and EGARCH(1, 1) and GJR-GRARCH(1, 1) have higher competence in analyzing the daily data. Also, most of the exposed firms have been exposed in the negative region, and appreciation of exchange rate does not help enhancing the asset value of the domestic value. Analysis on the asymmetries let us conclude that high proportion of domestic firms face asymmetric exchange rate exposure, and that the pricing-to-market theory carries more conviction than the real option theory. Furthermore, monthly data are more precise in analysis of asymmetries.

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