Effects of the Exercisable Duration and Quantity of Real Options in Multi-stages

Katsunori Kume and Takao Fujiwara
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Takao Fujiwara: Institute of Liberal Arts and Science, 1-1 Hibarigaoka, Tempaku, Toyohashi, Aichi, 441-8580, Japan

Technology Transfer and Entrepreneurship, 2016, vol. 3, issue 2, 107-118

Abstract: In response to the daily repeated supply chain of soft drink under uncertain demand, we apply the real options approach to a flexible production amount. A supplier can exercise call and put options in order to modulate between the demands and efficiency of a supplier’s productive capacity. First, we examine the impact on the option value (OV) between the three-stage cycle and the multi-stage for a one-year duration using Monte-Carlo simulation. The comparison shows that the options with multi-stage can increase the value. The reason is that the former options are only optimized within each three short stages, while the latter options are totally optimized in one year. Next on options with multi-stage, we examine the impact of the ratio of the exercisable option quantity to the demand on the OV. The OV can be gradually increased in proportion to a larger ratio, but the growth ratio is gradually reduced. Our study shows that options can yield OV in proportion to both a continuous number of stage and volume of exercised quantity.

Keywords: Real options; Monte-Carlo simulation; multi-stages; soft drink (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:ben:ttebsp:v:3:y:2016:i:2:p:107-118

DOI: 10.2174/2213809903666160419123332

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