Special Issue "Advances in Real Options"

A special issue of Journal of Risk and Financial Management (ISSN 1911-8074). This special issue belongs to the section "Economics and Finance".

Deadline for manuscript submissions: 30 April 2022.

Special Issue Editors

Prof. Dr. Luiz Eduardo T. Brandao
E-Mail Website
Guest Editor
PUC-Rio Business School, R. Marquês de São Vicente, 225 - Gávea, Rio de Janeiro RJ 22451-900, Brazil
Interests: business; real options; risk analysis; energy finance
Prof. Dr. Yuri Lawryshyn
E-Mail Website
Guest Editor
Department of Chemical Engineering and Applied Chemistry, University of Toronto, Toronto, ON M5S 3E5, Canada
Interests: valuation of engineering projects with an emphasis on real options

Special Issue Information

Dear Colleagues,

Real Options Theory (ROT), as a discipline, extends from applications of options in corporate finance to decision-making under uncertainty in general, adapting the techniques developed for financial options to "real-life" investment decisions. For example, R&D managers can use ROT to deal with various uncertainties in making decisions about the allocation of resources among R&D projects. A real-life example might be the decision to join the workforce, or rather, to forgo several years of income to attend graduate school. ROT forces decision-makers to be explicit about the assumptions underlying their projections, and, for this reason, ROT is increasingly employed as a tool in business strategy formulation. The extension of ROT to real-world projects often requires customized decision support systems to manage the compound and other complex real options configurations.

This Special Issue will gather theoretical and empirical papers addressing recent advances in real options. In particular, we invite original articles, comprehensive reviews, case studies, and research articles, which are neither published nor currently under review by other journals, discussing how ROT may contribute to ensuring business sustainability and success under uncertainty. This Special Issue will help bridge the gap between theory and practice in ROT adoption in corporate decision-making. Papers considered for the Special Issue will be subject to a rigorous peer review process with the aim of the rapid and wide dissemination of research advances, developments, and applications.

Prof. Dr. Luiz Eduardo T. Brandao
Prof. Dr. Yuri Lawryshyn
Guest Editors

Manuscript Submission Information

Manuscripts should be submitted online at www.mdpi.com by registering and logging in to this website. Once you are registered, click here to go to the submission form. Manuscripts can be submitted until the deadline. All papers will be peer-reviewed. Accepted papers will be published continuously in the journal (as soon as accepted) and will be listed together on the special issue website. Research articles, review articles as well as short communications are invited. For planned papers, a title and short abstract (about 100 words) can be sent to the Editorial Office for announcement on this website.

Submitted manuscripts should not have been published previously, nor be under consideration for publication elsewhere (except conference proceedings papers). All manuscripts are thoroughly refereed through a single-blind peer-review process. A guide for authors and other relevant information for submission of manuscripts is available on the Instructions for Authors page. Journal of Risk and Financial Management is an international peer-reviewed open access monthly journal published by MDPI.

Please visit the Instructions for Authors page before submitting a manuscript. The Article Processing Charge (APC) for publication in this open access journal is 1200 CHF (Swiss Francs). Submitted papers should be well formatted and use good English. Authors may use MDPI's English editing service prior to publication or during author revisions.

Published Papers (3 papers)

Order results
Result details
Select all
Export citation of selected articles as:

Research

Article
Choosing a Price and Cost Combination—The Role of Correlation
J. Risk Financial Manag. 2021, 14(11), 535; https://doi.org/10.3390/jrfm14110535 - 09 Nov 2021
Viewed by 252
Abstract
Often, firms can choose from different combinations of price and cost processes. For example, they can choose between different production locations or technologies, between different products to produce, or between different locations for selling them. To study the choice of the optimal combination, [...] Read more.
Often, firms can choose from different combinations of price and cost processes. For example, they can choose between different production locations or technologies, between different products to produce, or between different locations for selling them. To study the choice of the optimal combination, we return to themodel that was developed by Dixit and Pindyck, where both output price and production cost are stochastic processes, and add a novel focus on how the correlation between these processes affects the firm’s decision. We find that, ceteris paribus, the firm prefers the combination with the lowest correlation between the processes, as it seeks a greater profitability variance which maximizes its value. Full article
(This article belongs to the Special Issue Advances in Real Options)
Show Figures

Figure 1

Article
Investment Decisions with Two-Factor Uncertainty
J. Risk Financial Manag. 2021, 14(11), 534; https://doi.org/10.3390/jrfm14110534 - 08 Nov 2021
Viewed by 310
Abstract
This paper considers investment problems in real options with non-homogeneous two-factor uncertainty. We derive some analytical properties of the resulting optimal stopping problem and present a finite difference algorithm to approximate the firm’s value function and optimal exercise boundary. An important message in [...] Read more.
This paper considers investment problems in real options with non-homogeneous two-factor uncertainty. We derive some analytical properties of the resulting optimal stopping problem and present a finite difference algorithm to approximate the firm’s value function and optimal exercise boundary. An important message in our paper is that the frequently applied quasi-analytical approach underestimates the impact of uncertainty. This is caused by the fact that the quasi-analytical solution does not satisfy the partial differential equation that governs the value function. As a result, the quasi-analytical approach may wrongly advise to invest in a substantial part of the state space. Full article
(This article belongs to the Special Issue Advances in Real Options)
Show Figures

Figure 1

Article
Optimization of a Portfolio of Investment Projects: A Real Options Approach Using the Omega Measure
J. Risk Financial Manag. 2021, 14(11), 530; https://doi.org/10.3390/jrfm14110530 - 08 Nov 2021
Viewed by 412
Abstract
Investment decisions usually involve the assessment of more than one financial asset or investment project (real asset). The most appropriate way to analyze the viability of a real asset is not to study it in isolation but as part of a portfolio with [...] Read more.
Investment decisions usually involve the assessment of more than one financial asset or investment project (real asset). The most appropriate way to analyze the viability of a real asset is not to study it in isolation but as part of a portfolio with correlations between the input variables of the projects. This study proposes an optimization methodology for a portfolio of investment projects with real options based on maximizing the Omega performance measure. The classic portfolio optimization methodology uses the Sharpe ratio as the objective function, which is a function of the mean-variance of the returns of the portfolio distribution. The advantage of using Omega as an objective function is that it takes into account all moments of the portfolio’s distribution of returns or net present values (NPVs), not restricting the analysis to its mean and variance. We present an example to illustrate the proposed methodology, using the Monte Carlo simulation as the main tool due to its high flexibility in modeling uncertainties. The results show that the best risk-return ratio is obtained by optimizing the Omega measure. Full article
(This article belongs to the Special Issue Advances in Real Options)
Show Figures

Figure 1

Back to TopTop