Relevance of Real Options to Corporate Investment Decisions

Abstract

Real Options is the term used to refer to the application of option pricing theory to the valuation of investments in non-financial or "real" assets where much of the value is attributable to flexibility and learning over time.

A key problem with Real Options is that there are many different approaches and in what follows the different taxonomies that have been identified are reviewed, together with their implications for management use.

Keywords: real, options, taxonomy, managerial, relevance, investment, decisions

JEL Classification: G12, G31