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Valuing Modularity as a Real Option
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Gamba, Andrea and Fusari, N.. (2009) Valuing Modularity as a Real Option. Management Science, Vol.55 (No.11). pp. 1877-1896. ISSN 0025-1909
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Official URL: http://dx.doi.org/10.1287/mnsc.1090.1070
Abstract
We provide a general valuation approach for capital budgeting decisions involving the modularization in the design of a system. Within the framework developed by Baldwin and Clark (Baldwin, C. Y., K. B. Clark. 2000. Design Rules: The Power of Modularity. MIT Press, Cambridge, MA), we implement a valuation approach using a numerical procedure based on the least-squares Monte Carlo method proposed by Longstaff and Schwartz (Longstaff, F. A., E. S. Schwartz. 2001. Valuing American options by simulation: A simple least-squares approach. Rev. Financial Stud. 14(1) 113–147). The approach is accurate, general, and flexible.
| Item Type: | Journal Article |
|---|---|
| Subjects: | H Social Sciences > HG Finance |
| Divisions: | Faculty of Social Sciences > Warwick Business School > Finance Group Faculty of Social Sciences > Warwick Business School |
| Journal or Publication Title: | Management Science |
| Publisher: | Institute for Operations Research and the Management Sciences (I N F O R M S) |
| ISSN: | 0025-1909 |
| Date: | 2009 |
| Volume: | Vol.55 |
| Number: | No.11 |
| Number of Pages: | 20 |
| Page Range: | pp. 1877-1896 |
| Identification Number: | 10.1287/mnsc.1090.1070 |
| Status: | Peer Reviewed |
| Publication Status: | Published |
| Access rights to Published version: | Restricted or Subscription Access |
| URI: | http://wrap.warwick.ac.uk/id/eprint/44781 |
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