Valuing managerial flexibility: An application of real-option theory to steel industry investments

• Authors: RĘBIASZ Bogdan , GAWEŁ Bartłomiej , SKALNA Iwona
• Languages of publication: EN

Abstracts

EN

In the steel industry which is subject to significant volatility in its output prices and market demands for different ranges of products the diversification of production can generate important value for switch real options. Therefore, a common practice is to invest in various assets, thus generating the possibility of diversification of production and valuable switch options. The incremental benefit of product switch options in steel plant projects has been assessed. Such options are valued using the Monte Carlo simulation and modeling the prices of and demand for steel products as geometric Brownian motion (GBM). Our results show that this option can generate a significant increase in the net present value (NPV) of metallurgical projects.

Keywords

EN

real options; switch options; stochastic processes; investment decision; Monte Carlo simulation

• Publisher: Politechnika Wrocławska. Oficyna Wydawnicza Politechniki Wrocławskiej
• Journal: Operations Research and Decisions
• Year: 2017
• Volume: 27
• Issue: 2
• Pages: 91-111

Contributors

author

RĘBIASZ Bogdan

• AGH University of Science and Technology, ul. Gramatyka 10, 30-067 Krakow, Poland

author

GAWEŁ Bartłomiej

• AGH University of Science and Technology, ul. Gramatyka 10, 30-067 Krakow, Poland

author

SKALNA Iwona

• AGH University of Science and Technology, ul. Gramatyka 10, 30-067 Krakow, Poland

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Identifiers

DOI

10.5277/ord170206