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 ?
Of the four options, clearly two are not real options, business as usual and negotiation.
The first article, "Valuation of Real Options as Competitive Prototyping in System Development," by Diana I.
Real options, ambiguity, risk and insurance; world class university program in financial engineering, Ajou University; v.
Real options valuation theory is well developed and often used in financial markets, but infrequently applied in real estate appraisal.
Real options are generally distinguished from conventional financial options in that they are not typically traded as securities, and do not usually involve decisions on an underlying asset that is traded as a financial security.
In the literature, few studies have examined the impact of sequential investment projects and interdependence on the value of a portfolio of real options.
Essentially, a real options approach recognizes that managers invest in projects in stages based on new information that more closely reflects the realities of firms' rapidly changing operational and competitive environments.
Consulting industry veteran and developer of ESOVAL Models for valuing complex instruments and real options brings extensive expertise in energy and public utility sectors
Staring blankly at the wall or breaking into a nervous whistle have been the only real options - until now.
Abstract: The paper deals with the topic of real options in relation to the application of this approach to investment decisions in the field of advanced manufacturing technologies.
Real options theory is explicitly based on the idea that most investment projects embed a series of alternative actions.
Third, a typical capital investment project may have many embedded real options simultaneously, and it may be impractical to consider all of them.