Real options valuation

The Real Options Analysis (English: Real Option Valuation (ROV ), or real option analysis ( ROA) ) is an option valuation technique for investment.

In contrast to the standard valuation techniques such as the net present value method, the real option analysis tries to take into account that may change the risk during a project and that the contractor has the opportunity to respond. This is the business opportunities available ( options ), eg cancel the project / extend or to sell it, can be associated with, among others, using the Black -Scholes model or with an adapted Monte Carlo simulation a value. In combination with the probability of occurrence of each of these options, which enable the investment to assign a value. In general, the calculated with the real option analysis values ​​are higher than the net present value method.

• Investment Appraisal