The Application of Real Options to Global Public Policy Interventions
4 March 2020
Graduation Hall, Grauwzusters Cloister - University of Antwerp, City Campus, Lange Sint-Annastraat 7 - 2000 Antwerp (route: UAntwerpen, Stadscampus
Prof. dr. Danny Cassimon, Prof. dr. Peter-Jan Engelen
PhD defence Linda Peters - Faculty of Business and Economics
Real options analysis is based on the fundamentals of financial option theory for the valuation of investments. For this reason, real options is able maximize potential gains and minimize downside losses by capturing the value of flexibility in response to uncertainty whereas traditional valuation methods, such as net present value, are unable to do so. An important problem for real options is its complexity, and therefore, as a result, its use lags behind its potential with regards to applications in practice.
This study has the intention to contribute to close the gap between theory and practice by applying real options to a new field called global public policy (GPP). GPP interventions could be regarded as an investment. Real options is applicable from a financial perspective to determine the value of these interventions as well as from a strategic perspective to optimize the design of an intervention. Due to the uncertainty in the area of GPP, the power of real options will be accorded its full weight.
In three different fields, -mixed migration, neglected diseases and global warming-, an illustration is provided on the use and added value of real options. Prior to these applications, a typology is presented from which a practitioner is able to determine whether or not real options is of value. This study ends with an evaluation on how the application of real options to GPP interventions could be extended in the future.
Applying real options to a new field provides an insight to the reader on the necessary steps that should be taken with respect to the use of real options. This does not only highlight the added value of real options, but also addresses its limitations and demonstrates how to deal with these shortcomings. This provides a realistic picture on the use of real options and therefore has the objective to take away some of the hesitations to use real options in practice.