Real Option Valuation in Service Industries: Gabler Edition Wissenschaft

General trends and success factors in retail banking - Retail banking in Poland - Evaluation of capital investment decisions - The real options approach - Application of real option valuation to a retail banking startup in Poland

Dr. Jürgen Müller wrote his doctoral thesis in business administration while doing research at the finance department of the University of Trier. He is presently working as a consultant for McKinsey&Company Inc., Frankfurt/Main, focussing on financial institutions and corporate finance topics.

Uncertainty is the greatest risk management faces, but it also provides enormous opportunities for value creation. Basing strategic decisions on theoretically rigorous analysis is therefore vital to long-term corporate success in an uncertain and changing marketplace. The real option approach is the tool to integrate the values of flexibility and uncertainty into capital budgeting. Jürgen Müller applies the real option approach to service industries, in this case to retail banking; he provides empirical support for the approach and simplifies the applicability of real option concepts in corporate practice. Based on a case study of the Polish retail banking market, the author develops and illustrates a simplified approach to real option valuation based on the binomial option pricing model.