REAL OPTIONS VALUATION MODEL OF LINE EXPANSION PROBLEM IN THE AMOLED INDUSTRY

Su-Jung Lee and Dohoon Kim
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Su-Jung Lee: Department of Information Display Business Administration, Kung Hee University, Hoegi-dong 1, Dongdaemoon-gu, Seoul, 130-701, Korea
Dohoon Kim: College of Business Administration, Kyung Hee University, Hoegi-dong 1, Dongdaemoon-gu, Seoul, 130-701, Korea

Chapter 35 in Marketing and Management Sciences, 2010, pp 191-195 from World Scientific Publishing Co. Pte. Ltd.

Abstract: AbstractWe propose a model for the line expansion problem in the AMOLED (Active Matrix Organic Light Emitting Diodes) industry, which now faces market uncertainty: for example, changing customer needs, technological development path, etc. We focus on the optimal investment time and size of the AMOLED production lines. In particular, employed here is the ROV (Real Options Valuation) model to show how to capture the value of line expansion and to determine the optimal investment time. The ROV framework provides a systematic procedure to quantify an expected outcome of a flexible decision which is not possible in the frame of the traditional NPV (Net Present Value) approach. Furthermore, we also use Monte Carlo simulation to measure the uncertainty associated with the line expansion decision; Monte Carlo simulation estimates the volatility of a decision alternative. Lastly, we present a scenario planning to be conducted for what-if analysis of the ROV model.

Keywords: Management, Organizational Behavior, Marketing; Negotiation, Dynamic Models, International Business, Strategic Business, Human Resource, (search for similar items in EconPapers)
JEL-codes: O30 (search for similar items in EconPapers)
Date: 2010
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