Abstract
This chapter provides an introduction to the real options way of thinking. The valuation methods of real options are based on the option pricing theory for financial securities. Therefore in the first part of this chapter the basic concepts of financial options will be discussed. Real Options Analysis apply these basic concepts to real or physical assets. The second part of this chapter commences with the translation of financial to real option theory. Thereafter, a simple example is presented to illustrate the use of option pricing to value a deferral option and to describe the strengths and weaknesses of real options. In the concluding part, different option valuation methods such as dynamic programming, contingent claims and Monte Carlo simulation, are discussed.
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Peters, L. (2016). Introduction to Real Options Analysis. In: Real Options Illustrated. SpringerBriefs in Finance. Springer, Cham. https://doi.org/10.1007/978-3-319-28310-4_1
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DOI: https://doi.org/10.1007/978-3-319-28310-4_1
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