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Guo Xiaojian
Jiang Tianci
I.
real-option;
INTRODUCTION
PROBLEM DISCRIPTION
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158
TABLE I.
Financial Option
Underlying asset
Price of underlying
asset
Market volatility
Striking price
Expiration date
Option premium
III.
Real-option in IT Infrastructure
Commercial applications based on certain IT
infrastructure and follow-up investment
projects that may exist.
Values (returns) from follow-up investment
projects
Market demand uncertain of follow-up
investment projects
Cost payment of follow-up investment projects
Time of gaining the IT infrastructure resources
to losing the following investment
opportunities
Expenditure of IT infrastructure
MODEL CONSTRUCTION
CII = K > 0
Executing
Opportunities
Cost
for
the
Follow-up
(1)
Investment
ECFIO = fs 2 + cd
(2)
Case 2: if IT infrastructure investment is not conducted
for the time being, Cost of Initial Investment on IT
Infrastructure
CII ' = K = 0
(3)
Executing Cost for the Follow-up Investment
Opportunities
ECFIO' = fs 2 + cd
(4)
B. Demand Function
Suppose the equation of linear demand function is
d = s p
(5)
In the above equation, d means the demand for
derivatives from follow-up investment; s means product
performance parameter; while is random variable that
indicates demand preference for product with some
performance parameter s , and p , the price. We can see from
the above equation that product demand increases with the
increase of demand preference , so obviously supposed
>0.
Suppose demand preference is subject to Geometry
Brownian movement, with its expected value as 0 and
volatility as . Then according to the property of Lognormal
Distribution function, it could be
1
ln ( ) ~ ln 0 2 , 2
2
(6)
order condition
=0
s
parameter s t is gained as s* =
pc
2f
( p c)2 2 4 fp( p c )
4f
(9)
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160
0 ( < 1 )
Investment = ( p c )2 2 4 fp( p c )
4f
(10)
( 1 )
0 < '
1
4f
1'
(14)
(15)
IV.
4f
f ( ) d ( ) K
( p c )2 2 e 2 (a ) p( p c )(a ) K
1
2
0
4f
In which
opportunities
( p c )2 2 4 fp( p c )
4f
ln 0 + 3 2
1
a1 =
2
, a2 = a1 2 , ()
( p c)2 2 e 2 (a ) p( p c) (a )
3
4
0
4 f
(18)
In
=0
ln 0 ' + 3 2
1
which a 3 =
2
a 4 = a 3 2
Case 2: IT infrastructure
(17)
=0
Figure I
( p c )2 2 4 fp( p c )
opportunities
K0
V Investment ( 0 , ) = E Investment 1 Pr ( 1 ) K
( p c )2 2 4fp( p c )
4 f
(19)
B. Analysis on Sensitivity
According to the characteristic of IT product, data
simulation method can be used to analyze the influence
different factors have on IT infrastructure value and on
enterprises investment decision. We can suppose the value
of relative parameters, without loss of generality, that K = 3
f = c = 1 0 = 5 , = 1.1 . IT infrastructure value is
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161
Cost Advantage
Figure Analysis on Sensitivity
CONCLUSIONS
REFERENCES
[1]
[2]
[3]
[4]
[5]
[6]
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