Compound Real Option Valuation with Phase-Specific Volatility : A Multi-Phase Mobile Payments Case Study

Multi-staged R&D projects are copy-book cases of compound real options. Traditional compound option models assume a constant volatility over the lifetime of the project. Building on the n-fold compound option model of Cassimon et al. (2004), we extend this model to allow for phase-specific volatility estimates, while preserving the closed-form solution of the model. We illustrate the extended model with a case study of a real option valuation of a multi-stage software application project by a large mobile phone operator and we show how project managers can estimate phase-specific volatilities

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Year of publication:	2013
Authors:	Cassimon, Danny
Other Persons:	Engelen, Peter-Jan (contributor) ; Yordanov, Vilimir (contributor)
Publisher:	[2013]: [S.l.] : SSRN
Subject:	Volatilität \| Volatility \| Realoptionsansatz \| Real options analysis \| Elektronisches Zahlungsmittel \| Electronic payment \| Optionspreistheorie \| Option pricing theory