Title
Real options Real options
Author
Faculty/Department
Institute of Development Policy and Management
Publication type
bookPart
Publication
Dordrecht :Springer, [*]
Subject
Law
Source (book)
Encyclopedia of law and economics / Backhaus, J. [edit.]
ISBN - Hoofdstuk
978-1-4614-7883-6
Carrier
E
Target language
English (eng)
Full text (Publishers DOI)
Affiliation
University of Antwerp
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.
Handle