Application of Real Options to Evaluate the Development Process of New Aircraft Models
Investment decisions in the development and production of new aircraft models is difficult because of the technical and market uncertainties associated with such a complex process. The accompanying risks can be mitigated through a flexible approach that incorporates several decision points at diffe...
| Main Authors: | , |
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| Format: | Technical Report |
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AIAA
2006
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| Online Access: | http://hdl.handle.net/1721.1/34959 |
| _version_ | 1826193004787924992 |
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| author | Miller, Bruno Clarke, John-Paul |
| author_facet | Miller, Bruno Clarke, John-Paul |
| author_sort | Miller, Bruno |
| collection | MIT |
| description | Investment decisions in the development and production of new aircraft models is difficult because of the technical and market uncertainties associated with such a complex process. The accompanying risks can be
mitigated through a flexible approach that incorporates several decision points at different stages of the process. Therefore, as the project evolves, management will be able to diagnose its progress, compare it to
previous expectations, and decide to continue or not. In this paper, we present a methodology to evaluate flexible business strategies that is based on real options analysis (ROA) and Monte Carlo simulation. This methodology takes into account the flexibility that managers have to affect the success of any given project and, therefore, it provides a better estimate of project value. Numerical results are given for a representative process based on actual aircraft manufacturer’s data. |
| first_indexed | 2024-09-23T09:32:12Z |
| format | Technical Report |
| id | mit-1721.1/34959 |
| institution | Massachusetts Institute of Technology |
| last_indexed | 2024-09-23T09:32:12Z |
| publishDate | 2006 |
| publisher | AIAA |
| record_format | dspace |
| spelling | mit-1721.1/349592019-04-10T16:54:43Z Application of Real Options to Evaluate the Development Process of New Aircraft Models Miller, Bruno Clarke, John-Paul Airline Management and Operations Economics Air Transportation Investment decisions in the development and production of new aircraft models is difficult because of the technical and market uncertainties associated with such a complex process. The accompanying risks can be mitigated through a flexible approach that incorporates several decision points at different stages of the process. Therefore, as the project evolves, management will be able to diagnose its progress, compare it to previous expectations, and decide to continue or not. In this paper, we present a methodology to evaluate flexible business strategies that is based on real options analysis (ROA) and Monte Carlo simulation. This methodology takes into account the flexibility that managers have to affect the success of any given project and, therefore, it provides a better estimate of project value. Numerical results are given for a representative process based on actual aircraft manufacturer’s data. 2006-12-08T21:38:09Z 2006-12-08T21:38:09Z 2004 Technical Report http://hdl.handle.net/1721.1/34959 4th AIAA ATIO Forum, Chicago, Il. 2004 AIAA-2004-6498 242421 bytes application/pdf application/pdf AIAA |
| spellingShingle | Airline Management and Operations Economics Air Transportation Miller, Bruno Clarke, John-Paul Application of Real Options to Evaluate the Development Process of New Aircraft Models |
| title | Application of Real Options to Evaluate the Development Process of New Aircraft Models |
| title_full | Application of Real Options to Evaluate the Development Process of New Aircraft Models |
| title_fullStr | Application of Real Options to Evaluate the Development Process of New Aircraft Models |
| title_full_unstemmed | Application of Real Options to Evaluate the Development Process of New Aircraft Models |
| title_short | Application of Real Options to Evaluate the Development Process of New Aircraft Models |
| title_sort | application of real options to evaluate the development process of new aircraft models |
| topic | Airline Management and Operations Economics Air Transportation |
| url | http://hdl.handle.net/1721.1/34959 |
| work_keys_str_mv | AT millerbruno applicationofrealoptionstoevaluatethedevelopmentprocessofnewaircraftmodels AT clarkejohnpaul applicationofrealoptionstoevaluatethedevelopmentprocessofnewaircraftmodels |