Real Options Valuation Method
Jose FuentesGrupo 9
Tutor Ingrid Gómez
¿What is Real Options Valuation Method?
The Real Options Method is one of the new business valuation methods..
An option is a contract that confers the right, but not the obligation, to buy or sell a certain underlying asset («undelying asset«), at an exercise price. The call options are called Call and the put options are called Put.
The two most commonly used option pricing methods, both real and financial, are as follows:
- Binomial method .
- Formula Black - Scholes.
The most common real options that must be taken into account when valuing a business are:
- Expand / reduce the project
- Defer investment
- Use the investment for alternative uses
Factors that affect the real options:
- Expected value of flows
- Investment cost
- Discount rate
- Volatility of expected flows
- Time to exercise
- Option maintenance
- It´s value depends on the expected revaluation of the flows.
The options are divided:
Financial options:
- Financial options: Are traded on organized markets or OTC ("Over the Counter") markets.
- Real options: A real option is found in a project when investing when there is any future possibility of updating when the resolution of any current uncertainty is known.
¡Gracias!
Real Options Valuation Method
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Created on March 30, 2020
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Transcript
Real Options Valuation Method
Jose FuentesGrupo 9
Tutor Ingrid Gómez
¿What is Real Options Valuation Method?
The Real Options Method is one of the new business valuation methods.. An option is a contract that confers the right, but not the obligation, to buy or sell a certain underlying asset («undelying asset«), at an exercise price. The call options are called Call and the put options are called Put.
The two most commonly used option pricing methods, both real and financial, are as follows: - Binomial method . - Formula Black - Scholes.
The most common real options that must be taken into account when valuing a business are: - Expand / reduce the project - Defer investment - Use the investment for alternative uses Factors that affect the real options: - Expected value of flows - Investment cost - Discount rate - Volatility of expected flows - Time to exercise - Option maintenance - It´s value depends on the expected revaluation of the flows.
The options are divided: Financial options: - Financial options: Are traded on organized markets or OTC ("Over the Counter") markets. - Real options: A real option is found in a project when investing when there is any future possibility of updating when the resolution of any current uncertainty is known.
¡Gracias!