Nature of Interaction of Real Options: Validation Empirique on the Context Tunisien

Abstract

The academics and practitioners now recognize that the technique of net present value static when applied incorrectly under evaluates investment opportunities with many operating options and other strategic interactions. In fact, as suggested by Trigeorgis (1993), real options in a single project can inter-react. So, our assessment must take into account the probable interdependencies between different types of real options.

Thus the objective of this article is to examine the nature of the interactions of real options and evaluate an exploration and production project with flexibility in the form of multiple real options. The interactions usually depend on the type, separation, degree of being "in the money" and the order of options involved. This paper shows through an oil project, the importance of taking into account the interactions between the options to defer, to abandon, contract or expand investment opportunity. In our empirical validation, we concluded that the incremental value of an additional option, in the presence of other options, is generally lower than its value in isolation, and decrease if more real options are present. So in this case, errors of assessment if we neglect a particular option are low.

Keywords: interaction of real options, gross value of the project, additive value of real options, values isolated options, combined value of options.

JEL Classification: G11, G12, G13