What are Real Options?
In finance, These are actual or real options (other than derivatives) that an investor may undertake to certain business initiatives. Investment decisions can be optioned like:
- The option to invest
- There is no need to exercise option now – Can we wait for more information?
- The option to reject the option due to uncertain output from the project
The real options make a project more attractive because NPV method does not consider flexibility regarding options associated with the investment project.
1- The Abandonment Option
2- Wait and See Option
3- The Option to Invest