Types of Real Option
The flexibility available to management – i.e. the actual “real options” – generically, will relate to project size, project timing, and the operation of the project once established. In all cases, any (non-recoverable) upfront expenditure related to this flexibility is the option premium. Real options are also commonly applied to stock valuation - see Business valuation: Option pricing approaches - as well as to various other "Applications" referenced below.
Read more about this topic: Real Options Valuation
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