Real option

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 classic literature ?
Ray had, so it appeared, some very peculiar prejudices against the taking or making of any kind of picture whatsoever, owing to an exceedingly strict interpretation of the second commandment.
Management, math, engineering, economics, and other specialists from Europe, the US, and Chile address theoretical models of commodity storage and shipping, the performance of two models of the evolution of future prices of emission certificates, a method for optimization of the management of the real option to extract copper from a mine, real option analysis in the context of the merchant management of hydrocarbon cracking operations, and a model of the evolution of commodity prices used in real option analysis for optimizing the portfolio of contracts used by oil refineries to sell their gasoline production.
If the decision can be altered without cost, the real option has no value.
explains how the use of a financial tool called the real option valuation model can be used to evaluate choices for major weapons systems, despite the lack of monetary-based benefits.
Recent developments in the valuation of complex American options has allowed progress in the solution of many interesting real option problems.
Real estate presents several opportunities to employ real option valuation theories, including real estate purchase options, development and acquisition feasibility, bankruptcy, abandonment, and litigation.
A real option is the right (but not the obligation) to undertake certain business initiatives, such as deferring, abandoning, expanding, staging, or contracting a capital investment project.
The method which allows us to value the company and its investment projects in conditions of uncertainty, taking into consideration the ability of the company to react to changes taking place in the economy, is defined as Real Option Valuation (ROV), also often termed Real Options Analysis (ROA).
Specifically, the first real option is a growth option, which is the right to make additional investments if the initial investment is successful.
consider a variety of complex issues, namely affective management, scheduling algorithms, patent rights, the role of the Internet in managing business organizations, and strategic decision making with real option valuation models.
The worry is, Everton's financial state is such that the only real option available is a loan move or a free transfer gamble.