Financial Management

Financial Management

a) Real Options

Real option valuations are the right options that are taken in order to make certain business decisions such as contracting, staging, expanding, abandoning, or deferring; however, they are not obligatory. Examples include whether a firm should invest in a new product or pull out of the market. The difference between real options and conventional financial options are that financial options are traded in the market but real options cannot be traded (Eugene & Joel, 2012).

There are various methods of valuating real options. The most common are binomial lattices, closed form, Black-Scholes-like solutions, Specialized Monte Carlo Methods, and ...