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book chapter · 2009

The Modeling Framework

Graeme Guthrie

Cited by 0Abstract and details only

Abstract

Abstract If we are to analyze projects properly, we need to know how managers will exploit the flexibility embedded in those projects. To do this we need to understand managers’ objective functions. Section 2.1 explains why the manager of any firm should seek to maximize the market value of existing shareholders’ stake in the firm. The manager’s job is made more difficult by the uncertainty about the future consequences of any action. Modeling this uncertainty is a crucial part of real options analysis. Section 2.2 introduces the structure (called a binomial tree) that we use to model the risk associated with future cash flows. We use this structure in Section 2.3 to highlight the importance of dynamic decision making—that is, of using all available information to make future decisions.

Cite this paper

APA 7

Guthrie, G. (2009). The Modeling Framework. https://doi.org/10.1093/oso/9780195380637.003.0002

MLA 9

Guthrie, Graeme. “The Modeling Framework.” 2009, pp. 13–26, https://doi.org/10.1093/oso/9780195380637.003.0002.

Chicago

Guthrie, Graeme. 2009. “The Modeling Framework.” https://doi.org/10.1093/oso/9780195380637.003.0002.

Harvard

Guthrie, G. (2009) ‘The Modeling Framework’. Available at: https://doi.org/10.1093/oso/9780195380637.003.0002.

BibTeX
@incollection{guthrie2009modeling,
  title = {{The Modeling Framework}},
  author = {Guthrie, Graeme},
  pages = {13--26},
  year = {2009},
  doi = {10.1093/oso/9780195380637.003.0002}
}

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