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Investment projects analysis and valuation are not explained by traditional valuation models
(DCF) given the high proportion of value - represented by the project flexibility - that is not accounted for. Real Options
Theory solves this problem, representing an innovative decision-making tool, especially in those situations facing
uncertainty.
Investment Projects Valuation.
The Real Options approach is more appropriate than
Discounted Cash Flow Models because it accounts for project flexibility.
Oil Industry and Natural Resources.
Options to defer project initiation, to abandon early,
to expand or contract its operations, to stop temporarily, etc, can be valued as Real Options.
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Technology and Venture Capital.
The valuation of businesses with high growth opportunities,
VC deals, or new products launch are approached by Real Option framework.
Real Estate.
The value of an option to defer a Real Estate development, to switch between
different uses, or to redesign a building can be quantified as options.
Electricity Sector.
Valuation of Electricity Generation and Transmission Assets as Real Options.
Other applications:
Government concessions, leasing contracts, Project Finance, etc.
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