Course Information Package
|Course Unit Title||SUSTAINABLE BUILT ENVIRONMENT|
|Course Unit Code||MEM519|
|Course Unit Details||MSc Engineering Management (Electives Courses) -|
|Number of ECTS credits allocated||7|
|Learning Outcomes of the course unit||By the end of the course, the students should be able to:|
|Mode of Delivery||Face-to-face|
|Recommended optional program components||Readings: |
The students are expected to read and review 4-5 papers from relevant scientific and business journals.
|Course Contents||Part 1: Categorization of real options|
Investment options and operational flexibility options with examples from various industries.
Part 2: Theoretical foundations
Stochastic modelling assumptions and Ito’s Lemma. Derivation of option partial differential equation through replication or equilibrium model CAPM. Risk neutral valuation of real options.
Part3: Analytic solutions in one dimension
The option to defer. The option to abandon. Sensitivities of option formulas.
Part 4: Numerical lattice valuation of simple options
The Cox-Ross-Rubinstein binomial model. Pricing simple options with/without optimal timing. Deriving the optimal investment trigger boundary.
Part 5: Sequential options in one dimension
Compound and growth options using the binomial lattice. Analytic compound options solutions. Interactions between sequential options.
Part 6: Multi-dimensional options
Options to exchange one asset for another. Options on the maximum or minimum of 2 stochastic variables. Analytic solutions and two dimensional lattice implementation.
Reduction of dimensionality.
Part 7: Monte Carlo simulation option valuation using Excel in one and many dimensions
Evaluation of simple call and put, evaluation of options on the maximum or minimum and options to exchange one asset for another.
Part 8: Applications with portfolios of real options
Backwards dynamic programming solutions on binomial trees when many options are involved. Applications to real cases in automobile manufacturing plant, energy, pharmaceutical R&D, telecommunications and technology.
Part 9: Other issues in real options analysis
Path-dependency and the general switching model. Options with jump-to-ruin risk.
Research and development and learning options. Valuation of firm’s equity with option to invest and default.
|Recommended and/or required reading:|
|Planned learning activities and teaching methods||The course is delivered through three hours of lectures per week. Lectures also include in-class exercises to enhance the material learning process. The course also includes coursework involving computer exercises in Microsoft Excel and Visual Basic for Applications in Excel. |
The course material (notes, exercises, forum, etc) is maintained on the university’s e-learning platform
|Assessment methods and criteria|
|Language of instruction||English|