Monday, November 2, 2009

Terminator and Real Options

The FT today has an article about the auction of rights to the Terminator movie franchise (a few weeks ago they had also auctioned the rights to the The Teenage Mutant Ninja Turtles for $60mi). The owner will be able to launch new movies, TV series and anything related to the last Terminator movie.

This story reminded me of the Arundel Partners case. The case asks students to apply option pricing theory to value the option to produce sequels to Hollywood blockbusters. They have to estimate the volatility, consider potential moral hazard problems and decide which movies to use when estimating parameters.

This term for the first time  I'll use it in the Corporate Finance course to talk about Real Options. I hope it goes  down well with students. Everyone gets scared the first time they see the Black-Scholes formula on the board...

No comments:

Post a Comment