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Erschienen in: Business & Information Systems Engineering 5/2013

01.10.2013 | State of the Art

Valuation of IT Investments Using Real Options Theory

verfasst von: Dipl.-Kfm. Christian Ullrich

Erschienen in: Business & Information Systems Engineering | Ausgabe 5/2013

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Abstract

Real Options Theory is often applied to the valuation of IT investments. The application of Real Options Theory is generally accompanied by a monetary valuation of real options through option pricing models which in turn are based on restrictive assumptions and thus subject to criticism. Therefore, this paper analyzes the application of option pricing models to the valuation of IT investments. A structured literature review reveals the types of IT investments which are valued with Real Options Theory in scientific literature. These types of IT investments are further investigated and their main characteristics are compared to the restrictive assumptions of traditional option pricing models. This analysis serves as a basis for further discussion on how the identified papers address these assumptions. The results show that a lot of papers do not account for critical assumptions, although it is known that the assumptions are not fulfilled. Moreover, the type of IT investment determines the criticality of the assumptions. Additionally, several extensions or adaptions of traditional option pricing models can be found which provide the possibility to relax critical assumptions. Researchers can profit from the results derived in this paper in two ways: First, it is demonstrated which assumptions can be critical for various types of IT investments. Second, extensions of option pricing models that relax critical assumptions are introduced.
Fußnoten
1
Here, the assumptions of the BSM are listed although only assumption (A2) differs from the assumptions of the BM. But if the time intervals of the BM are scaled down, the binomial process of the BM can be converted to the continuous process of the BSM (Trigeorgis 1996, p. 83).
 
2
Assumption (A5) will not be further considered since it is not ROT-specific but rather necessary for several capital market models (as, e.g., the Capital Asset Pricing Model).
 
3
For the derivation of the formulas necessary for option valuation, see standard literature such as Franke and Hax (2003) or Perridon et al. (2009).
 
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Metadaten
Titel
Valuation of IT Investments Using Real Options Theory
verfasst von
Dipl.-Kfm. Christian Ullrich
Publikationsdatum
01.10.2013
Verlag
Springer Fachmedien Wiesbaden
Erschienen in
Business & Information Systems Engineering / Ausgabe 5/2013
Print ISSN: 2363-7005
Elektronische ISSN: 1867-0202
DOI
https://doi.org/10.1007/s12599-013-0286-0

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