Valuation Model for Portfolios of Real Options

This chapter contains the formulation of a valuation model for the portfolio problem defined in Sec. 2.1.2 where portfolios of real options are understood as a combination of multiple underlying assets and multiple real options written on these assets, subject to constraints.

The model description is organized as follows: First, the described portfolio aspects are translated into model features that the general model formulation will take into account. Then, the binomial model is introduced as the starting point for our proposed model, which is then expanded successively to n underlying assets.