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 ?
Real Options Analysis for Disaster Risk Related Strategic Investment
Mainstreaming disaster risk management for finance: application of real options method for disaster risk sensitive project/Incorporacion de la gestion del riesgo de desastres a las finanzas: aplicacion del metodo de opciones reales para proyectos sensibles al riesgo de desastres
BAMS = Broad Area Maritime Surveillance; E-2D AHE = Advanced Hawkeye; IDECM = Integrated Defensive Electronic Countermeasures; MUOS = Mobile User Objective System; NMT = Navy Multiband Terminal; ROA = Real Options Analysis; ROI = Return on Investment; SSC = Ship- to-Shore; VTUAV = Vertical Take-Off and Landing Tactical Unmanned Aerial Vehicle.
A comparative analysis of the value of technology readiness assessments
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.
Options in real estate valuation
Real options analysis provides a tool for the successful integration of market information and strategic engineering and economic decisions.
Use of real options theory
(2002), "Real Options Analysis of the Timing of IS Investment Decisions", Information & Management Vol.39, No.5, pp.
InterCon Travel Health: case B
Baecker that uses real options analysis to determine the
Describing patents as real options
For those who would like to know more about real options analysis, here are some additional sources.
Improving capital budgeting decisions with real options
Cave and Minty (2004) present a method that structures real options thinking and incorporates real options analysis into this framework.
A real options approach for entrepreneurs making decisions under uncertainty
An Example of Real Options Analysis Applied to a Research and
The unexpected value of litigation: a real options perspective
Kauffman, 2000, "Justifying Electronic Banking Network Expansion Using Real Options Analysis", MIS Quarterly Archive, 24:197-225
13010110 Capacity planning
He says real options analysis is superior to a DCF valuation at the company level, particularly for valuing small, potentially high-growth companies where options are few and variability of the outcome is high.
When Valuation Considers "Real Options"
Through real options analysis (but not formal option valuation), NIF managers were able to assess the cost effectiveness of their options at each stage.
Valuation of real options as competitive prototyping in system development
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