Strategy, Value and Risk - The Real Options Approach

JAMIE ROGERS is a consultant with PricewaterhouseCoopers, New York with their financial risk management practice. He has extensive experience in a range of areas such as financial, energy and commodities markets, corporate finance, financial derivative and econometric quantitative techniques.

• List of Figures and Tables Preface Acknowledgements Introduction 1 The business environment and strategy Value and risk Strategy and real options References PART I THE EVOLUTION OF STRATEGY, VALUE AND MEASURING RISK 1 Strategy: From Corporate Planning to Shareholder Value 2 Valuation   2.1 DCF valuation 2.2 Management and valuation 2.3 Investors and valuation 3 Investment Risk References 4 Three Strategic DCF Case Studies 4.1 Introduction 4.2 Software DCF example 4.3 Energy 4.4 The pharmaceutical industry References PART II DEVELOPMENTS IN STRATEGY, VALUE AND RISK MANAGEMENT 5 Developments in Strategy 5.1 Creative destruction 5.2 Innovation 5.3 Resources and capabilities 5.4 Game theory 5.5 Strategy and real options References 6 Real Options 6.1 Discounted cash flows 6.2 Real options 6.3 Valuing real options 6.4 Types of real options References 7 Risk Management 7.1 Why manage risk? 7.2 The risk drivers 7.3 Value and risk management 7.4 The metrics References PART III QUANTIFYING REAL OPTIONS 59 The solution methods 8 Derivatives 8.1 Futures, forwards and options 8.2 The replicating portfolio and risk-neutral valuation 9 Data Analysis 9.1 Data and information 9.2 Time series analysis 9.3 Volatility 9.4 Which volatility? 10 Option Pricing Methods 10.1 Analytical models 10.2 The Black–Scholes formula 10.3 Numerical techniques 11 Implementing Real Options 11.1 Spot price models 11.2 Geometric brownian motion models 11.3 Mean reversion 11.4 Jumps and seasonal patterns 11.5 Forward curve models 11.6 A single factor model for the forward curve 11.7 The dynamics of the forward curve 11.8 A general multifactor model of the forward curve 11.9 Relationship between forward curve and spot price models 11.10 Alternative real options methods 11.11 Dynamic programming 11.12 Decision analysis 11.13 Model risk 11.14 Real option portfolios and interdependencies References PART IV REAL OPTIONS CASE STUDIES AND PRACTICAL IMPLICATIONS 12 Three Strategic Real Options Case Studies 12.1Introduction 12.2 Software real option example 12.3 Energy valuation case 12.4 Pharmaceutical References 13 Conclusion and Practical Implications References Index