Arundel Partners
...ving the process from the studio lots. Unlike the studios, Arundel did not need to consider the talent÷Õ reaction when deciding if a sequel should be made. While sequels do not enjoy the same success, Arundel Partners believes that there is value in having an option to produce a movie÷Õ sequel. Since movies have volatile returns (for example the standard deviation for hypothetical sequel revenues was $31.5 million compared to an average of $21.6 million), Arundel can profit from this play by using option pricing theory. By employing a portfolio approach, Arundel Partners is effectively hedging its risk that might arise when movies are not successful. Arundel avoids an asymmetrical information disadvantage by purchasing the sequel rights of movies in blocks before the originals have been made. The portfolio and early purchase plan allows the partnership to negotiate a cheaper price. This stems from the fact...