Application of Real Options to Evaluate the Development Process of New Aircraft Models
Name
ATIO2004Miller.pdf
Size
236.74 KB
Format
Adobe PDF
Checksum (MD5)
767f0b2fed52e075aec5bbf67c5a6e5b
Author(s)
Miller, Bruno
Clarke, John-Paul
Date Issued
2004
Publisher
AIAA
Citation
4th AIAA ATIO Forum, Chicago, Il. 2004
Series/Report no.
AIAA-2004-6498
Abstract
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.
Subjects
Airline Management and Operations
Economics
Air Transportation
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