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 ?
Such alternatives of decisions are called real options, and the method is called real options analysis (see for example the definitions and examples in the standard financial management textbook of Brigham and Ehrhardt, 2014).
A real options analysis, however, will prove otherwise.
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.
Legal scholars have begun to apply real options analysis to 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.
The approach described in this paper provides a solution to integrate real options analysis into evaluation of flexible manufacturing systems.
Uncertainties must exist during the software acquisition process; otherwise, the real options analysis becomes useless as everything is assumed to be certain and known.
2006): "Application of real options analysis for pharmaceutical R&D project valuation--Empirical results from a survey", Research Policy, vol.