(1) Department of Management Science and Information Systems, The University of Texas at Austin, McCombs School of Business, 1 University Station B6500, CBA 5.202, Austin, TX, 78712-1175
Abstract:
In this paper we seek to enhance the real options methodology developed by Copeland and Antikarov (2001) with traditional
decision analysis tools to propose a discrete time method that allows the problem to be specified and solved with off the
shelf decision analysis software. This method uses dynamic programming with an innovative algorithm to model the project’s
stochastic process and real options with decision trees. The method is computationally intense, but simpler and more intuitive
than traditional methods, thus allowing for greater flexibility in the modeling of the problem.