Real option

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Real option

An option or option-like feature embedded in a real investment opportunity.

Real Option

A situation in which an investor is able to choose between two different investments where both choices involve tangible assets. That is, in a real option, the investor may choose between assets like land or inventory; financial instruments like stocks and bonds are not involved in a real option. It should be noted that a real option has nothing to do with an option contract.
References in periodicals archive ?
The second model is a real options analysis known as a binomial model because the option is an "either/ or," "yes/no" type of decision.
Real options analysis provides a tool for the successful integration of market information and strategic engineering and economic decisions.
2002), "Using Real Options Analysis for Evaluating Uncertain Investments in IT" Communications of the AIS, Vol.
example, applied real options analysis to the decision to pursue a
For those who would like to know more about real options analysis, here are some additional sources.
This suggests that entrepreneurs do not understand real options analysis or are not able to integrate it effectively into their real options thinking.
of the law, (23) very few articles apply real options analysis to the
At the project level of all companies, however, regardless of their size, real options analysis will always improve NPV valuations.
While high volatility signifies high risk and implies a higher discount rate and lower value in traditional NPV valuation, a high volatility in real options analysis is linked to high-option value.
For business executives, managers, financial analysts, and students, the authors describe the tool of real options analysis and its use in project valuation and the quantification of the value of an option.
Maxiom Group has developed a unique methodology that utilizes Real Options Analysis, Monte Carlo Simulation and Optimization Models to help executives identify ways to mitigate risks and exploit opportunities.
Particular attention is paid to provide detail on how to perform real options analysis and valuation.