par DDjian le Dim 14 Juin - 22:54

It was a pleasure to have Claus Hirzmann (Amadeus) introduce us to the concept of "real options". I will try to summarize the talk below, and I encourage everyone to correct and challenge my perception

Claus presented the key advantage of real options as to provide a model to compute a fair financial value for flexibility (real options are derived from models of financial options). This financial value yields less conservative results than Net Present Value (NPV) calculations on the uncertainty of cashflow.

The paradigm shift behind real options consists in accepting the uncertainty associated with risks, instead of trying to reduce or control this uncertainty. He gave, among others, one example of an expedition which might encounter tigers. Usually we would try to reduce the probability of such encounters, for instance by getting local information on tigers' general habits and recent sightings in order to optimize our route. Claus made us research ways to build flexibility for the future, in this case by assuming that we would encounter tigers. Taking shotguns for the expedition was one way of creating such flexibility (in addition to legal advice on the local fine for killing members of endangered species...)

The associated mathematical model uses decision trees, it seems with the possibility of walking "backwards" from leaf to root. Claus also mentioned uncertainty relationships being represented by arrows between decision tree nodes. In one example, NPV was negative, which would usually lead to a project

*No-Go*, but building flexibility via real options provided some positive valuations, thus showing that this project could in fact bring positive financial gains.

Claus finally recommended for further reading: Real Options: A Practitioner's Guide (Hardcover) by Thomas E. Copeland (Author), Vladimir Antikarov (Author)

To conclude, I enjoyed this stimulating and very interative session. I had trouble following the mechanics of the examples, which I suspect is due to the challenge of presenting such a complex subject in a short time, so again, a discussion follow-up here is in order!

David