Executive Summary
Real options arise from the ability of economic agents to adjust their behavior to maximize the values of their assets or contracts.
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Common examples are the right to make, expand, contract, defer, or cancel an investment or contract.
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Value real options by considering the value of the asset or contract with and without the ability to adjust.
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In some cases, the Black–Scholes model can be used to approximate the value of real options directly.
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Real options generally increase in value as uncertainty about the future increases.
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Real options can be proprietary or shared, simple or compound, restructurable or not.
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Real options have real value; many corporate valuations cannot be explained except for the presence of real options.
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