Real Options

P.J. Engelen; Danny Cassimon

doi:10.1007/978-1-4614-7883-6_406-2

Real Options

P.J. Engelen^*
, Danny Cassimon

^*Corresponding author for this work

UU LEG Research UUSE Multidisciplinary Economics

University of Antwerp

Research output: Chapter in Book/Report/Conference proceeding › Chapter › Academic › peer-review

Abstract

When (real sector) investment projects are characterized by a substantial degree of uncertainty and irreversibility, and carry some flexibility in the timing of execution, they are conceptually analogous to financial options. As such, the concepts and valuation models developed in the financial options literature can also be applied to characterize and value these “real option” investment projects. As such, after having shown this analogy between financial and real options in detail, we review the main types of real options, discuss the main valuation models developed in the literature and discuss ways in which to identify and estimate the different types of risk, as a proxy for uncertainties involved in the project.

Original language	English
Title of host publication	Encyclopedia of Law and Economics
Editors	A Marciano, G Ramello
Publisher	Springer
Number of pages	10
ISBN (Electronic)	978-1-4614-7883-6
DOIs	https://doi.org/10.1007/978-1-4614-7883-6_406-2
Publication status	Published - 2018

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10.1007/978-1-4614-7883-6_406-2

978-1-4614-7883-6_406-2Final published version, 264 KBLicence: Taverne

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abstract = "When (real sector) investment projects are characterized by a substantial degree of uncertainty and irreversibility, and carry some flexibility in the timing of execution, they are conceptually analogous to financial options. As such, the concepts and valuation models developed in the financial options literature can also be applied to characterize and value these “real option” investment projects. As such, after having shown this analogy between financial and real options in detail, we review the main types of real options, discuss the main valuation models developed in the literature and discuss ways in which to identify and estimate the different types of risk, as a proxy for uncertainties involved in the project.",

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Real Options

Abstract

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