re: High level finance class is a new level of intense

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Anyone here familiar with it?

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No, surprisingly. I had to look it up.

I've dealt with stochastic models that treated corporate investment decisions as real options (American, not European) based on the work of Dixit (Princeton) & Pindyck (MIT Sloan), but it was extremely academic, mathematical, and unrelatable to the real world.

As one Amazon reviewer for their key book on the subject notes: "This is probably the most useless book on real options which I own. The book is extremely difficult to follow and uses academic mathematical notation which is difficult for practitioners to follow. In addition, the authors have largely ignored both the underlying business operations which create real options and the existing operations literature on project management, operations research, petroleum engineering, manufacturing systems engineering, etc. which provide many of the tools necessary for practical evaluation of real options. The bottom line is don't waste your money on this book."

We used academic journal articles rather than books, but I would have to agree with the gist of the sentiment there.


Anyway, I looked up the NPVq stuff, and it looks much more practical and useful. I probably would have enjoyed a course that had it. DCF works for assessing individual business projects against a benchmark IRR, but classical NPV does a better job at prioritizing net value creation. Classical NPV clarifies thinking on net value creation, but NPVq reflects the nuances of timing factors involved with projects that businesses often shelve or re-embrace.

European options would seem to cut out a lot of the real-world nuance on timing, but it's probably a good approximation, and thus a good idea to make that simplification anyway.