Session 21: The Essence of Real Options

[@RTX94]

Thank you for making this channel, Professor.

[@Godavari_kudi]

Thank you so much for the explanation, My managerial finance prof - Kirk Vandezande (Schulich school of business) has recommended your channel.

[@sidhshaa]

Great explanation Studied this subject 6yrs back in yr book. N now referring for valuing my business in the process of diluting the equity.

[@profmiked]

why does the new project at 3:53 has the same prob with the previous one? first, there is never going to be a downside of 120. second, where do the prob of 1/3 and 2/3 come from?

[@ralfholzbach6560]

Thank you, Professor Damodaran!

[@basmatoufahi8832]

Exciting explanation!

[@ricardoufop]

at 7:35 when he says LOSE MONEY is actually MAKING PROFIT. I think we got confused. In the PUT OPTION that he explained there were not WINNING scenario.

[@sobriquet5016]

Completely agree, was just about to comment the same thing! Thanks Ricardo.

[@AshotArzumanyan]

Thank you for this professor! Quick question with the hope you will see and respond. I try to value a convertible note to a startup without revenues with Black Scholes. I make an assumption that its value is function of the number of users, so I take the standard deviation of user number as if it is the standard deviation of the underlying asset value. Is that a legitimate approach?

[@5minuteFin]

Thank you, professor!

[@anagomes3244]

Thank you, Professor!

[@xcinvestment1231]

slides: people.stern.nyu.edu/adamodar/pdfiles/valonlineslides/session20.pdf

[@Andrew6James]

Can someone explain the math here? I don't see how the second ijvestment has the same 50/50 probability. Additionally, how was the expected value calculated for the second investment? He says it is positive but I got 0

[@vishwasmaheshwari1152]

Exactly, we do not have a downside of 120 here and the expected value of the entire project is 0 only. The max downside we can have here is -80 ( +20-100) . I think he got the math wrong here.

[@Mrtimao2000]

In my opinion, they are assumed to be two independent investments. The second is divided into two stages with the total prob of 6/6 = the first one 2/2. The key here is you first have to "try" your chance to know if you get lucky or not with smaller investment. if you get 20 positive, you keep going since you already had 20 and compared to the first investment like you have made the firt one become fair investment with 50% each of minus or plus 100. These figures are just an idea trying to explain you the function of options (options to learn to adapt).

[@brunomizzulinich3279]

thank you professor!

[@suryasoni4753]

Why do we use risk free rate in Black and Scholes Equation?

[@JoseArrieta]

Thank you

[@porifici]

thank you!

[@sebastianaguiarbrunemeier9192]

You are a total badass and great explainer, but what's with that garish red sweater?

[@MrMqueiros]

In first step: 3/4 and 1/4 the 3:15 (see kzbin.info/www/bejne/rHWzc6uOYp13iZY)

[@soumyajitsaha3227]

Looks like when you break out you either gain 100M or lose 80M cumulatively