Capital Budgeting for Interrelated Projects:
by Paul D. Childs, Steven H. Ott, and Alexander J. Triantis
A Real Options Approach
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The graph above shows the various policy valuations at time t1 vs the
outcome of the first project. The black curve is the value of doing nothing,
the blue curve is the value of implementing project a only, the green
curve is the value of developing project b only, and the red curve is
the value of implementing project a and developing project b. The
color coded bar along the bottom of the graph corresponds to the optimal
intermediate policy for a given value outcome for project a at time
correlation coefficient (between the benefits of the two projects) changes from
-1 to 1 as the animation progresses. All other parameters match those of Figure
2 from the paper.
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