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Web Event - Optimization Model for Capital Investment Decisions using Option Pricing

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Presented By

John Birge is Dean of the McCormick School of Engineering and Applied Science at the Northwestern University in Illinois.

Birge is presently the President of INFORMS, the international Institute for Operations Research (OR) and Management Sciences. He is past editor-in-chief of the magazine, "Mathematical Programming", Series B.

He is a popular speaker and during the past years has been in demand for his talks on stochastic programming and optimization. He has given seminars on OR plus taught classes on linear programming.

Birge has also written a textbook along with Francois Louveaux on "Introduction to Stochastic Programming".

See a recording of this Web Seminar: Part One | Part Two | Zipped Powerpoint Slides 

Financial option valuation models have been around for many years but this seminar offers a new twist. Real-option evaluation applies these models to capital investment decisions. It incorporates into the valuation process the possible opportunities the company may enjoy later using either new knowledge or changes in the marketplace.

The talk focuses on the construction of optimization models for determining the best investment levels and will demonstrate how these stochastic (involving random variables) programs can consider risk without creating unwieldy formulations. Real examples of companies using this process include Hewlett-Packard, Intel and General Motors and will be covered in the presentation.

Benefits of real-option methodology

Traditional net present value (calculates the value of a project by predicting its payouts, adjusting them for risk and subtracting the investment outlay) or rate of return analyses are presupposing the risk, which biases the solution. The result of these failed analyses is lost value and possible failure of the company. On the other hand, the use of real-options enables:
  • Final investment decisions to be more consistent with the goals of companies
  • A more realistic value for making decisions
Often real-options are just used to evaluate separate decisions but that can limit the possibilities. Now, optimization enables consideration of multiple interlocking decisions (cause and effect) on investments - a more accurate economic model.

Competing in this high technology age with inflexible management tools is like wearing in-line skates while rock climbing. Don't miss this important event!

Who should attend

This seminar is designed as an educational forum and meant for strategic planners, financial analysts, consultants and operations research analysts for exploring issues surrounding capital expenditures. Anyone interested in hearing about innovative, practical decision making tools should attend this event.

See a recording of this Web Seminar: Part One | Part Two | Zipped Powerpoint Slides

 


 
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