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A synthetic protective put strategy for phased investment in projects without an outright deferral

Bhattacharya, Sukanto 2006, A synthetic protective put strategy for phased investment in projects without an outright deferral, Derivatives: use, trading & regulation, vol. 12, no. 1/2, pp. 2-13.

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Title A synthetic protective put strategy for phased investment in projects without an outright deferral
Author(s) Bhattacharya, Sukanto
Journal name Derivatives: use, trading & regulation
Volume number 12
Issue number 1/2
Start page 2
End page 13
Publisher Palgrave Macmillan
Place of publication Basingstoke, England
Publication date 2006-05-01
ISSN 1747-4426
1357-0927
Summary This paper proposes and computationally demonstrates a synthetic protective put strategy for real options. Specifically, it deals with the problem of deferral option when an outright deferral is not permissible owing to competitive pressures. It is demonstrated that, in such a situation, an appropriate strategy would be to invest in the new project in phases rather than doing it all at once. The replicating portfolio for a protective put on the project is obtained by setting the owner’s equity in the project equal to the price of a call option on the value of the project. This is a logical extension of the financial protective put to the real options scenario and is relatively simple and practicable for businesses to adopt and apply.
Language eng
Field of Research 149999 Economics not elsewhere classified
Socio Economic Objective 970114 Expanding Knowledge in Economics
HERDC Research category C1.1 Refereed article in a scholarly journal
Copyright notice ©2006, Palgrave Macmillan
Persistent URL http://hdl.handle.net/10536/DRO/DU:30035235

Document type: Journal Article
Collection: School of Accounting, Economics and Finance
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