Skip to main content

Technical Note: Waiting Cost Models for Real Options

Buy Article:

$55.00 plus tax (Refund Policy)

When real options are used to estimate the value of delaying an engineering project, it is necessary to consider the cash flows or project benefits that are lost due to the delay. This note describes various models of these cash flows and surveys previous TEE articles to see which are used and how often delay costs are ignored. The first model considered is based on the lost dividends Black-Scholes model for financial options, which is one of the most common models used in real options even though it does not explicitly consider cash flows. More realistic scenarios include the loss of initial cash flows, delays in starting to receive the same number of cash flows, loss of cash flows at the project horizon, and permanent loss of market share. The outcomes are compared with the often unrealistic case of omitting these delay costs. We assert that the common omission of waiting costs is rarely appropriate and offer models that better capture the costs of delaying real projects.
No Reference information available - sign in for access.
No Citation information available - sign in for access.
No Supplementary Data.
No Article Media
No Metrics

Document Type: Research Article

Affiliations: 1: TGE Consulting, Anchorage, Alaska, USA 2: University of Bridgeport, Bridgeport, Connecticut, USA 3: University of Florida, Gainesville, Florida, USA

Publication date: 01 January 2009

  • Access Key
  • Free content
  • Partial Free content
  • New content
  • Open access content
  • Partial Open access content
  • Subscribed content
  • Partial Subscribed content
  • Free trial content
Cookie Policy
Cookie Policy
Ingenta Connect website makes use of cookies so as to keep track of data that you have filled in. I am Happy with this Find out more