| BUSINESSWEEK ONLINE : JUNE 7, 1999 ISSUE | ||||||||
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| FINANCE
Who Has Opted for Real Options--And Why This breakthrough technique is gaining followers fast HEWLETT-PACKARD HP wants to keep its component costs as low as possible. But it also wants its components to be versatile, to give it the option of using them in different products. That raises their cost. Real options help weigh the trade-off between low cost and flexibility. ENRON The Houston company noticed that natural gas was, in effect, an ''option'' on electricity because it could be used to generate power. It's building power plants near gas pipelines to produce electricity when prices spike, taking advantage of increased volatility. CADENCE DESIGN SYSTEMS This Silicon Valley outfit uses real-options valuation methods to break logjams in negotiations over computer-chip design licenses. Contracts are easier to hammer out when buyers and sellers speak the same real-options language. AIRBUS INDUSTRIE Airbus and its rival Boeing both offer generous options to airline customers to cancel or change orders. But airlines don't know how much those options are worth--compared with, say, a price cut. Airbus explains their value using real-options analysis. ANADARKO PETROLEUM Real options gave Anadarko the confidence to bid high for a lease in the Gulf of Mexico, where the potential was vast but uncertain. It won 100% of the Tanzanite lease and last July announced a ''major oil and gas discovery'' there. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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RELATED ITEMS Exploiting Uncertainty TABLE: The New Math in Action TABLE: Who Has Opted for Real Options--And Why Options, Options, Everywhere INTERACT E-Mail to Business Week Online | |||
