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Project Flexibility, Agency, and Competition: New Developments in the Theory and Application of Real Options [Hardcover]

Michael J. Brennan , Lenos Trigeorgis

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Book Description

Oct. 15 1999
Project Flexibility, Agency, and Competition exemplifies how the development and application of the real options paradigm has revolutionized project evaluation and corporate strategy. The first part of the book focuses on the valuation and the exercise of corporate real options, examining situations in which future project cash flows are (at least partially) controllable by management. Part II deals with agency issues, contracts, and incentives, concentrating on agency problems that arise in a dynamic setting when cash flows are controllable and decision makers have private information. Part III deals with the determination of optimal policies and the valuation of flexibility in natural resource investments. The final part of the book looks at strategic options and product market competition, particularly at reactions of outside parties where strategic interactions between agents are important. These reactions naturally lead to game-theoretic or industry equilibrium valuation models. Project Flexibility, Agency, and Competition is well-suited for corporate executives and students of finance, economics, and engineering management that focus on issues in budgeting or financial theory, and for courses in finance, strategy, and management that deal with options and strategy.

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"One of the most novel and exciting applications of option theory has been the evaluation of production choices and flexibility as "options". As exemplified by this book, real options analysis has permeated nearly every aspect of decision-making. It could not have had better qualified editors to oversee the selection process and provide deep insight and perspective to this new field. Along with his many significant contributions to just about every branch of modern finance, Michael Brennan was also one of the pioneers in developing real options theory. Lenos Trigeorgis came in at an inflection point and has contributed widely and importantly to the subject, including his influential book, Real Options. Jointly they have put together an excellent collection of papers on the most recent developments.--"Robert C. Merton, Harvard Business School

"Scholars who have made fundamental contributions to the real options literature once again enhance our understanding through their joint efforts to produce an excellent, comprehensive, and innovative book on real options, edited brilliantly by Michael Brennan and Lenos Trigeorgis. The book is a must for academics and applied specialists interested in a rigorous framework to formulate corporate investment and financing decisions under uncertainty and market frictions."--Myron Scholes, Stanford University and Oak Hill Capital Management

"Drawing on the enormous success of the analytic techniques for pricing financial options, Brennan and Trigeorgis masterfully illuminate vast areas of real corporate activity. Real options lie at the heart of corporate strategy and this work will be a constant and essential reference for anyone who seriously deals with these important matters."--Stephen A. Ross, MIT and Roll and Ross Asset Management

"Project Flexibility, Agency, and Competition provides an excellent choice of readings by two leaders in the field. A good balance of theoretical and applied studies."--Franklin Allen, Wharton School, University of Pennsylvania

"A collection of insightful and original essays on the recent developments in the theory and application of real options in project management, thoroughly edited and prefaced by Michael Brennan and Lenos Trigeorgis, two acknowledged experts on real options. I strongly recommend it to the serious practitioner and student of project management."--George M. Constantinides, Graduate School of Business, University of Chicago

"Recently the principles of real options analysis have come of age, and currently they are being used by leading corporations worldwide and are very popular among academics and practitioners. Because of this, the Brennan-Trigeorgis book is very timely. It contains an excellent collection of representative papers covering a wide spectrum of real options from both theoretical and practical viewpoints. I recommend it to anyone who wants to learn more about this relatively new and very exciting field."--Alexander Lipton, Vice President, Deutsche Bank

"I believe that this book will further the development of the real options discipline as both an academic subject and a framework for real problem solving. The collection of papers cover a broad range of important issues and show how those issues can be rigorously addressed. The papers are lucid, relevant, and make significant contributions."--David G. Luenberger, Stanford University

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Most firms do not make explicit use of real option techniques in evaluating investments. Read the first page
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Amazon.com: 3.7 out of 5 stars  3 reviews
17 of 17 people found the following review helpful
4.0 out of 5 stars Cutting edge but very challenging mathematically July 2 2000
By A Customer - Published on Amazon.com
This book gives you the latest update on what's going on in real options theory. Brilliant throughout, but its really too hard mathematically to be of much value for someone who's not a math-person. I found the chapter on the Antamina mine to be immensely interesting. It was originally used as a case study on options theory at Harvard and shows you how these academics went about valuing a peruvian mine. It's a very valuable chapter because it is focused on the practical side of real options theory. The chapter on "Rules of thumb for capital budgeting" didn't make much sense at all to me. The rest of the chapters are no easy read, but if you feel up to it mathematically, you're going to find this a very interesting book. If your not that much into mathematics, I think it's going to leave you rather frustrated. This book cannot have been meant as a guide for practitioners, it's more of a field day for academics, that's my impression at least.
15 of 16 people found the following review helpful
4.0 out of 5 stars The book of the year 2000 on real options ! April 21 2000
By A Customer - Published on Amazon.com
OK, I admit the year has not ended yet, but that doesn't mean you mus not read this: now! This book is co-edited by Trigeorgis, one of the most proeminent author in the area. It deals with all the new developements on real options. It's objective is to give the researcher or student a key to enter the world of real options. Contributions are worldwide, mainly by people with a strong mathematical background. This makes it sometime difficult to understand for more management focused readers. However the book by the quality of the writting and the new ideas it brings, keeps you awake like a thriller. To be own by any person who want's to know about the future (nearly present) of corporate finance.
3.0 out of 5 stars Good book, learnt a lot. July 9 2001
By A Customer - Published on Amazon.com
Actually, I'd give it 3.5 stars. Excellent exposition and developement of material. However, there are quite a few typo's that would throw the reader with less math off the trail (and possibly some with good math). Good coverage of different types of cases, underlying math, real world appications and properties of solutions. Personally, I would have preferred all the rigorous material (including math proofs) in the one book rather than making statements and referring to seminal real options papers very often. Some credit is due here, however, as there are some proofs in appendices at the end of each chapter - I think these could have gone into a little more detail and depth - (I say this only because there isn't the vast library of books on this subject that exists for more mature disciplines - guess I was looking for a more comprehensive reference.) I have read Trigeorgis' other books so this was not an introduction. Liked the book, learnt a lot and am applying it to real life projects, however had to learn a fair bit on my own too.

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