Real Options 2.

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Presentation transcript:

Real Options 2

Background..

Oil prices moving… Now assume that a crisis in the Middle East causes oil prices to jump from $80/barrel to $160/barrel tomorrow. What will happen to the market values of the two companies? They will both go up by the same amount Royal Dutch will go up more than Petrobras Petrobras will go up more than Royal Dutch

And back again.. Assume that the crisis passes the day after tomorrow and that oil prices drop back to $ 80/barrel. What do you foresee happening to the market values of the two companies? They will both revert back to the current market cap They will both be worth more than the current market cap, but Royal Dutch will be worth more. They will both be worth more than the current market cap, but Petrobras will be worth more.