First cycle
degree courses
Second cycle
degree courses
Single cycle
degree courses
School of Economics and Political Science
Course unit
EPP6077362, A.A. 2018/19

Information concerning the students who enrolled in A.Y. 2017/18

Information on the course unit
Degree course Second cycle degree in
EP2422, Degree course structure A.Y. 2017/18, A.Y. 2018/19
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Degree course track BANKING AND FINANCE [001PD]
Number of ECTS credits allocated 6.0
Type of assessment Mark
Course unit English denomination ANALYSIS OF INVESTMENT PROJECTS
Website of the academic structure
Department of reference Department of Economics and Management
E-Learning website
Mandatory attendance No
Language of instruction English
Single Course unit The Course unit CANNOT be attended under the option Single Course unit attendance
Optional Course unit The Course unit can be chosen as Optional Course unit

Teacher in charge MICHELE MORETTO SECS-P/01

ECTS: details
Type Scientific-Disciplinary Sector Credits allocated
Core courses SECS-P/01 Political Economy 6.0

Course unit organization
Period First semester
Year 2nd Year
Teaching method frontal

Type of hours Credits Teaching
Hours of
Individual study
Lecture 6.0 42 108.0 No turn

Start of activities 01/10/2018
End of activities 18/01/2019

Examination board
Examination board not defined

Prerequisites: Microeconomics and Mathematics of Financial Markets.
Mathematics of Financial Derivatives,
Elements of (Stochastic) Dynamic Optimization
Target skills and knowledge: The course is designed to bridge the gap between theory and practice concerning investment decisions. This part review current techniques of capital budgeting and details an approach based on the pricing of Real Options that provides a means of quantifying the elements of managerial flexibility in the face of unexpected changes in the markets. Also it will be discussed the strategic value of new technology, the interdependence of projects, and competitive interactions both for private and public investments in a game theoretical framework.
Examination methods: Written Exam
Assessment criteria: The evaluation will be based on a written final exam. The final assignments will involve the analysis of cases and analysis of investment problems similar to those presented in classes.
Course unit contents: Part A: Introduction
1)Capital Budgetin
2)The Contingent Claim Analysis (CCA)
3)Real Options
4)Simple Examples
- Managerial flexibility
- Forest resources
- Weather derivatives
- Scale production → Call option
- Land use → Put option
Part B: Tools
5)Continuous stochastic processes and Ito's Lemma
6)Stochastic Dynamic Programming (SDP)
7)Valuation of the Option to Wait to Invest
8)Optimal investment rule using CCA
9)Optimal investment rule using SDP
10)Black and Scholes - Merton formula
11)The Beta for Options
12)Interactions among Multiple Real Options
-Moothballing - Option to Shut Dow and Restart
-Optimal Scrapping - Operating Option
-Abandonment value - Option to Exit
-Set Aside - Option to Switch
Part C: Investment Theory Under Uncertainty
13)Value of a Firm as a sum of Operation Options
-Sequential Investment – Compound Options
-Two Stage Projects
-The Central Planner Decision
-A Competitive Industry
14) Strategic Investment, Real Options and Games
- The Preemption game
- War of Attrition game
- The Value of Learning
- Sequential Games: A Supply Chain Example
- Principal Agent in Continuous Time
- Procurement and Auctions
Part D: Case Studies
15) Possible Applications
Planned learning activities and teaching methods: Upon completion of the course students will be able to: Find the arbitrage-free price of simple claims in the binomial option pricing model. Determine the real-options value for simple capital investment projects. Determine the Real Options value for multi-stage projects. Determine the optimal investment, expansion, and abandonment policies for capital investment projects. Evaluate the Real Options in a strategic Environment by using Game Theory. Incorporate multiple sources of uncertainty into ROA.
Teaching methods
Lectures (examples of investment case studies will be analysed during the lectures).
Additional notes about suggested reading: Slides of the lectures and a reading list are available online
Textbooks (and optional supplementary readings)
  • Micalizzi, Alberto; Trigeorgis, Lenos, Real options applicationsproceedings of the First Milan international workshop on Real optionsedited by Alberto Micalizzi, Lenos Trigeorgisforeword by Michael Brennan. Milano: EGEA, --. Cerca nel catalogo
  • Trigeorgis, Lenos, Real options. Boston: MIT Press, 1996. Cerca nel catalogo
  • Dixit, Avinash K.; Pindyck, Robert S., Investment under uncertaintyAvinash K. Dixit and Robert S. Pindyck. Princeton: Princeton university press, --. Cerca nel catalogo

Innovative teaching methods: Teaching and learning strategies
  • Lecturing
  • Case study

Innovative teaching methods: Software or applications used
  • Moodle (files, quizzes, workshops, ...)

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