Valuation and optimal timing of the investment in next generation telecommunication service using real options

Valuation and optimal timing of the investment in next generation telecommunication service using real options

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Article ID: iaor20073313
Country: South Korea
Volume: 32
Issue: 3
Start Page Number: 180
End Page Number: 190
Publication Date: Sep 2006
Journal: Journal of the Korean Institute of Industrial Engineers
Authors: , , ,
Keywords: investment, finance & banking
Abstract:

We evaluate the economic value and the optimal investment timing of IMT-2000 in Korea, in the perspective of a service provider who owns the business license for IMT-2000, by using the real options analysis. The result clearly shows the project value with options is positive and delaying the investment is more favorable to the provider. Binomial lattice approach, in which we try to describe American call option and sequential compound option, and sensitivity analysis present the optimal decisions according to future states and enable the management to make decision strategically and proactively.

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