International Comparison of Nigerian Petroleum Fiscal Regime with the US, UK and Norway: A Real Option Analysis on Deepwater Projects Investment

In this paper we scrutinise the composition of one of the most renowned economic indicators that is regularly released for more than 30 countries and regions. The composite Purchasing Managers? Index (PMI) is constructed by pooling several survey based sub-components with certain fixed weights. Its characteristic feature is that its computation is based on the standardised methodology by that was developed for the PMI in the US more than thirty years ago. Though the uniform methodology makes the international comparison of national PMIs an easy and transparent task, it is not immediately clear whether the current fixed weighting scheme of the PMI components is supported by the data for other countries than US. We address this question using Switzerland as an example and our approach, based on Boriss Siliverstovs (2017), can be easily extended to other national PMIs. We find that the relative weights of the PMI components are generally supported by the data, except the fact that one component, found very informative for explaining GDP growth, is currently omitted from the PMI composition.

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A real option approach for the valuation of switching output flexibility in residential property investment

Journal of Financial Management of Property and Construction ◽

10.1108/jfmpc-05-2017-0017 ◽

2018 ◽

Vol 23 (2) ◽

pp. 133-151 ◽

Cited By ~ 2

Author(s):

Kwabena Mintah ◽

David Higgins ◽

Judith Callanan

Keyword(s):

Real Options ◽

Real Option ◽

Economic Value ◽

Management Tool ◽

Residential Property ◽

Option Valuation ◽

Content Type ◽

Real Option Analysis ◽

Real Option Valuation ◽

Mixed Use

Purpose Uncertainties in residential property investment performance require that real estate assets are designed in a flexible manner to respond to impacts of market dynamics. Though estimating the cost of flexibility is straightforward, assessing the economic value of flexibility is not. The purpose of this study is to explore the potential practical application of real option analysis to determine the economic value of a switching output flexibility embedded in a residential property investment in Australia. The study involves the exploration of an optimal strategy for investment in a residential development through real option analysis and valuation of a mixed use investment. Design/methodology/approach The real option valuation model developed by McDonald and Siegel (1986) is adopted for the evaluation because the switching output flexibility is likened to a perpetual American call option with dividend payout. Findings Through real option analysis, the economic value of switching output flexibility of the mixed use building was determined to be higher than the initial upfront costs. Moreover, a payoff of about $4million was determined to be the value of the switching output flexibility, therefore justifying upfront investments in flexibility as an uncertainty and risk management tool. Practical implications This application is an important demonstration of the practical use of options pricing techniques (real options analysis) and delivers further evidence needed to support the adoption of real option valuation in practice. Flexibility can also enhance risks and uncertainty management in residential property investment better than the adjustment of discount rates. Originality/value There is limited evidence on the use of real options techniques for the valuation of switching output flexibility in practice, and this comes as an original application; both the case study and data are all initial applications of switching flexibility in the Australian property market.

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