The surge of innovation in information technology at the end of the twentieth century reduced the cost of communications, which facilitated the globalization of the production and capital markets. Globalization has in turn spurred competition and consequently innovation. Sustainable competitive advantage is an increasingly difficult proposition in this environment, a fact which raises a number of issues for organizations: how to create and manage value, how to improve an organization’s capabilities to respond and adapt, how to manage the effect of competition on industry structures and how to foster and manage innovation. In response to these issues one concept is having an impact and influence on organizations. Real options, a form of advanced financial analysis, apply financial options theory to real assets. The concept offers a framework that can link value to risk and uncertainty, and the ability to manage the strategic opportunities that lie in an increasingly dynamic environment. Updated and revised, this second edition illustrates the issues with detailed case studies.

Acknowledgements Introduction The Business Environment and Strategy Value and Risk Strategy and Real Options PART I: THE EVOLUTION OF STRATEGY, VALUE AND MEASURING RISK Strategy: From Corporate Planning to Shareholder Value Valuation Investment Risk Six Strategic DCF Case Studies PART II: DEVELOPMENTS IN STRATEGY, VALUE AND RISK MANAGEMENT Developments in Strategy Real Options Risk Management PART III: QUANTIFYING REAL OPTIONS 59 The Solution Methods Derivatives Data Analysis Option Pricing Methods Implementing Real Options PART IV: REAL OPTIONS CASE STUDIES AND PRACTICAL IMPLICATIONS Three Strategic Real Options Case Studies Conclusion and Practical Implications References Index