The Application of Real Options in E-Business System Management

This paper studies the performance of real options applied in the e-Business system investment. We propose a model to address managerial flexibility in introducing the e-Business system into a traditional business and seek an optimum time point for investment. Based on the assumptions of the base demand, the derived demand occurring on the new e-Business system can be characterized by nonstationary stochastic processes. The model solutions can be acquired by solving a dynamic programming taking into account the discounted cash-flow. The sensitivity analysis is also provided through model evaluation and numerical illustration