Jump to ContentJump to Main Navigation
Pricing the Planet's FutureThe Economics of Discounting in an Uncertain World$
Users without a subscription are not able to see the full content.

Christian Gollier

Print publication date: 2012

Print ISBN-13: 9780691148762

Published to Princeton Scholarship Online: October 2017

DOI: 10.23943/princeton/9780691148762.001.0001

Show Summary Details
Page of

PRINTED FROM PRINCETON SCHOLARSHIP ONLINE (www.princeton.universitypressscholarship.com). (c) Copyright Princeton University Press, 2022. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in PRSO for personal use.date: 28 June 2022

The Option Value of Uncertain Projects

The Option Value of Uncertain Projects

(p.203) 13 The Option Value of Uncertain Projects
Pricing the Planet's Future

Christian Gollier

Princeton University Press

This chapter first illustrates the notion of an option value with a simple numerical example, before examining a more sophisticated application with a Poisson two-armed bandit. In the first case, there is an option value to wait. In the second case, there is an option value to experiment. The theory of real option value has the objective to adjust the standard cost-benefit methodology, which is static by nature, in order to integrate these dynamic aspects of the evaluation problem. The computation of option values must be done by backward induction. At each node of the decision tree, the optimal decision is made by taking into account the optimal decisions in the subsequent nodes of that part of the tree.

Keywords:   option value, uncertain projects, Poisson two-armed bandit, backward induction, risk management, net present values, NPV

Princeton Scholarship Online requires a subscription or purchase to access the full text of books within the service. Public users can however freely search the site and view the abstracts and keywords for each book and chapter.

Please, subscribe or login to access full text content.

If you think you should have access to this title, please contact your librarian.

To troubleshoot, please check our FAQs , and if you can't find the answer there, please contact us.