Real-options-based planning strategies under uncertainty

Anshuman Gupta, Costas D. Maranas

Research output: Contribution to journalArticle

17 Citations (Scopus)

Abstract

In this work, a real-options-based valuation (ROV) framework for hedging under uncertainty is developed. The basic idea of the proposed ROV methodology is the recognition and utilization of external market opportunities to guide internal planning decisions of a company. This is achieved by applying key financial planning principles such as arbitrage-free pricing and risk-neutral valuation to real, nonfinancial resource allocation decisions under uncertainty. Three application areas of the ROV methodology are described: production planning, pharmaceutical pipeline management, and emission trading. Multistage stochastic programming is used to incorporate uncertainty and a quantitative comparison of the ROV approach, and the traditional net-present-value (NPV) approach is provided.

Original languageEnglish (US)
Pages (from-to)3870-3878
Number of pages9
JournalIndustrial and Engineering Chemistry Research
Volume43
Issue number14
StatePublished - Jul 7 2004

Fingerprint

Planning
Stochastic programming
Drug products
Resource allocation
Pipelines
Pharmaceutical Preparations
Uncertainty
Costs
Industry

All Science Journal Classification (ASJC) codes

  • Chemistry(all)
  • Chemical Engineering(all)
  • Industrial and Manufacturing Engineering

Cite this

@article{9e379ce4491e4b0f869efbfd21195850,
title = "Real-options-based planning strategies under uncertainty",
abstract = "In this work, a real-options-based valuation (ROV) framework for hedging under uncertainty is developed. The basic idea of the proposed ROV methodology is the recognition and utilization of external market opportunities to guide internal planning decisions of a company. This is achieved by applying key financial planning principles such as arbitrage-free pricing and risk-neutral valuation to real, nonfinancial resource allocation decisions under uncertainty. Three application areas of the ROV methodology are described: production planning, pharmaceutical pipeline management, and emission trading. Multistage stochastic programming is used to incorporate uncertainty and a quantitative comparison of the ROV approach, and the traditional net-present-value (NPV) approach is provided.",
author = "Anshuman Gupta and Maranas, {Costas D.}",
year = "2004",
month = "7",
day = "7",
language = "English (US)",
volume = "43",
pages = "3870--3878",
journal = "Industrial and Engineering Chemistry Research",
issn = "0888-5885",
publisher = "American Chemical Society",
number = "14",

}

Real-options-based planning strategies under uncertainty. / Gupta, Anshuman; Maranas, Costas D.

In: Industrial and Engineering Chemistry Research, Vol. 43, No. 14, 07.07.2004, p. 3870-3878.

Research output: Contribution to journalArticle

TY - JOUR

T1 - Real-options-based planning strategies under uncertainty

AU - Gupta, Anshuman

AU - Maranas, Costas D.

PY - 2004/7/7

Y1 - 2004/7/7

N2 - In this work, a real-options-based valuation (ROV) framework for hedging under uncertainty is developed. The basic idea of the proposed ROV methodology is the recognition and utilization of external market opportunities to guide internal planning decisions of a company. This is achieved by applying key financial planning principles such as arbitrage-free pricing and risk-neutral valuation to real, nonfinancial resource allocation decisions under uncertainty. Three application areas of the ROV methodology are described: production planning, pharmaceutical pipeline management, and emission trading. Multistage stochastic programming is used to incorporate uncertainty and a quantitative comparison of the ROV approach, and the traditional net-present-value (NPV) approach is provided.

AB - In this work, a real-options-based valuation (ROV) framework for hedging under uncertainty is developed. The basic idea of the proposed ROV methodology is the recognition and utilization of external market opportunities to guide internal planning decisions of a company. This is achieved by applying key financial planning principles such as arbitrage-free pricing and risk-neutral valuation to real, nonfinancial resource allocation decisions under uncertainty. Three application areas of the ROV methodology are described: production planning, pharmaceutical pipeline management, and emission trading. Multistage stochastic programming is used to incorporate uncertainty and a quantitative comparison of the ROV approach, and the traditional net-present-value (NPV) approach is provided.

UR - http://www.scopus.com/inward/record.url?scp=3042782456&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=3042782456&partnerID=8YFLogxK

M3 - Article

AN - SCOPUS:3042782456

VL - 43

SP - 3870

EP - 3878

JO - Industrial and Engineering Chemistry Research

JF - Industrial and Engineering Chemistry Research

SN - 0888-5885

IS - 14

ER -