Real Options Valuation The Importance of Interest Rate Modelling in
This book analyzes real options valuation for non-constant versus constant interest rates using simulations and historical backtesting. It provides a systematic analysis and compares real options valuation using constant interest rates and the implied for
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Marcus Schulmerich
Real Options Valuation The Importance of Interest Rate Modelling in Theory and Practice Second Edition
Dr. Marcus Schulmerich, CFA, FRM Vice President State Street Global Advisors (SSgA) Brienner Strasse 59 80333 Munich Germany [email protected]
ISBN 978-3-642-12661-1 e-ISBN 978-3-642-12662-8 DOI 10.1007/978-3-642-12662-8 Springer Heidelberg Dordrecht London New York Library of Congress Control Number: 2010932875 # Springer-Verlag Berlin Heidelberg 2005, 2010 This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publication or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its current version, and permission for use must always be obtained from Springer. Violations are liable to prosecution under the German Copyright Law. The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Cover design: WMXDesign GmbH Printed on acid-free paper Springer is part of Springer Science+Business Media (www.springer.com)
To my parents.
Preface to the Second Edition
After the first edition of this book was published in early 2005, the world has changed dramatically and at a pace never seen before. The changes that occurred in 2008 and 2009 were completely unthinkable two years before. These changes took place not only in the Finance sector, the origin of the crisis, but also, as a result, in other economic sectors like the automotive sector. Governments now own substantial parts, if not majorities, in banks or other companies which recorded losses of double digit billions of USD in 2008. 2008 saw the collapse of leading stand-alone U.S. investment banks. In many countries interest rates fell close to zero. What has happend? While the economy showed strong growth in 2004 to 2006, the Subprime or Credit Crisis changed the picture completely. What started in the U.S. housing market in late 2006 became a full-fledged global financial crisis and has affected financial markets around the world. A decline in U.S. house prices and increasing interest rates caused a higher rate of subprime mortgage delinquencies in the U.S. and, due to the wide distribution of securitized assets, had a negative effect on other markets. As a result, markets realized that risks had been underestimated and volatility increased. This development culminated in the bankruptcy of the investment bank Lehman Brothers in mid September 2008. Consequently, credit spreads widened and the depth of the crisis led to the absence of prices and secondary markets for structured credit products. The uncertainty as to where los
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