The material below comprises excerpts from books by Dr. Johnathan Mun, our CEO and founder, such as Readings in Certified Quantitative Risk Management, 3rd Edition, and Quantitative Research Methods Using Risk Simulator and ROV BizStats Software Applying Econometrics, Multivariate Regression, Parametric and Nonparametric Hypothesis Testing, Monte Carlo Risk Simulation, Predictive Modeling, and Optimization, 4th Edition (https://www.amazon.com/author/johnathanmun). All screenshots and analytical models are run using the ROV Risk Simulator and ROV BizStats software applications. Statistical results shown are computed using Risk Simulator or BizStats. Online Training Videos are also available on these topics as well as the Certified in Quantitative Risk Management (CQRM) certification program. All materials are copyrighted as well as patent protected under international law, with all rights reserved.
This section goes into more detail in terms of the applications and computations of real options problems using the Real Options SLS software. Each option is discussed in detail followed by simple case studies and solutions using the SLS software. Additional study questions and hands-on exercises are also included at the end of some of the case studies. For more details on Real Options Analysis and the applications of the SLS software, please refer to the book, Real Options Analysis, Third Edition (Thomson–Shore, 2016), also by the author, which provides more detailed and protracted discussions, including the analytics behind the computations Those discussions are focused on understanding how the real options analysis process works, whereas this section’s short cases are focused on how the real options computations and software work. The Real Options SLS software comprises several modules listed below.
- The Single Asset Super Lattice Solver (SLS) module is used primarily for solving options with a single underlying asset using binomial lattices. Even highly complex options with a single underlying asset can be solved using the SLS included in this module.
- The Multiple Asset/Phase Super Lattice Solver (MSLS) module is used for solving options with multiple underlying assets and sequential compound options with multiple phases using binomial lattices. Highly complex options with multiple underlying assets and phases can be solved using the MSLS found in this module.
- The Multinomial Lattice Solver (MNLS) module uses multinomial lattices (trinomial, quadranomial, pentanomial) to solve specific options that cannot be solved using binomial lattices.
- The Lattice Maker is used to create lattices in Excel with visible and live equations, useful for running Monte Carlo simulations with the Risk Simulator software (an Excel add-in, risk-based simulation, forecasting, and optimization software also developed by ROV) or for linking to and from other spreadsheet models. The lattices generated also include decision lattices where the strategic decisions to execute certain options and the optimal timing to execute these options are shown.
- The Advanced Exotic Financial Options Valuator is a comprehensive calculator of more than 250 functions and models, from basic options to exotic options (e.g., from Black-Scholes to multinomial lattices to closed-form differential equations and analytical methods for valuing exotic options, as well as other options-related models such as bond options, volatility computations, delta-gamma hedging, etc.).
- The SLS Excel Solution implements the SLS and MSLS computations within the Excel environment, allowing users to access the SLS and MSLS functions directly in Excel. This feature facilitates model building, formula and value linking and embedding, and running simulations, and provides the user sample templates to create such models.
- The SLS Functions are additional real options and financial options models accessible directly through Excel. This module facilitates model building, linking and embedding, and running simulations.
- The Strategy Tree module is used to simplify the drawing and creation of strategy trees but is not used for the actual real options valuation modeling. This module helps you to create visually appealing representations of strategic real options during the options framing portion of your analysis.