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 ?
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.
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), "Real Options Analysis of the Timing of IS Investment Decisions", Information & Management Vol.39, No.5, pp.
Baecker that uses real options analysis to determine the
For those who would like to know more about real options analysis, here are some additional sources.
Cave and Minty (2004) present a method that structures real options thinking and incorporates real options analysis into this framework.
An Example of Real Options Analysis Applied to a Research and
Kauffman, 2000, "Justifying Electronic Banking Network Expansion Using Real Options Analysis", MIS Quarterly Archive, 24:197-225
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.
Through real options analysis (but not formal option valuation), NIF managers were able to assess the cost effectiveness of their options at each stage.