It is widely accepted in literature that an increase in uncertainty should have an inhibiting effect on investment results. This paper shows that the concept of a negative ‘uncertainty – investment’ relationship is not always correct. In fact, the uncertainty can actually have a positive impact on investment by means of the real options approach. In this context, this paper deals with a theory useful to increase the performance of a Supply Chain (SC) operating in today’s business environment full of uncertainty. Focusing the attention on a specific network two factors are assumed as the main sources of uncertainty: demand and technology change. A switch option is used to develop a new framework to quantify and maximise the expected Net Present Value (NPV). A numerical example and a sensitivity analysis of the option value are finally presented.

Switch Option: Managing Strategic Investment in an uncertain world

Cucchiella, Federica;Gastaldi, Massimo
2008-01-01

Abstract

It is widely accepted in literature that an increase in uncertainty should have an inhibiting effect on investment results. This paper shows that the concept of a negative ‘uncertainty – investment’ relationship is not always correct. In fact, the uncertainty can actually have a positive impact on investment by means of the real options approach. In this context, this paper deals with a theory useful to increase the performance of a Supply Chain (SC) operating in today’s business environment full of uncertainty. Focusing the attention on a specific network two factors are assumed as the main sources of uncertainty: demand and technology change. A switch option is used to develop a new framework to quantify and maximise the expected Net Present Value (NPV). A numerical example and a sensitivity analysis of the option value are finally presented.
File in questo prodotto:
Non ci sono file associati a questo prodotto.
Pubblicazioni consigliate

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11697/4902
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 1
  • ???jsp.display-item.citation.isi??? ND
social impact