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Real options method calculated with Decision trees

Jhon Hernandez

Created on April 7, 2024

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Jhon Alejandro Hernandez Grouo Number: 158 07/04/2023

Real options method calculated with Decision trees

Definition

consists of graphically outlining the possible results, costs and consequences of a complex decision Used to calculate the expected value for each function of the decisions made and their respective consequences

Processes Related

Identification of real options: this being the step that involves identifying the decisions that the company can make in the useful life of a project. Sensitivity analysis: Used to evaluate how the value of the project changes in response to changes in key parameters. Real options modeling: It is represented graphically with the different decisions or possible results.

How can companies create value from their innovation?

Mainly make sure of a need, then create a specific product or service for that need and based on that, develop a project and an increase in demand and new business alternatives, playing a comfortable place for both the client and the company in the economic issue. Likewise, the value acquired gives way to an improvement or reconditioning of the proposed idea, being an advantage to have an innovative product, there will be other companies or people who generate the same product, so the idea must be validated and improved every day. to continue acquiring value and responding to the needs raised.

SOM

Mathematical formulas.

To estimate the expected value generated by each decision, after determining the cost of each result and the probability of its occurrence, it is done as follows: Valor esperado (EV) = (First possible outcome * probability of outcome)+(Second possible outcome * probability of outcome)-Cost

Competencia

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