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Tuesday, November 8, 2011

Real options valuation

Real options valuation, also often termed Real options analysis,[1] (ROV or ROA) applies option valuation techniques to capital budgeting decisions.[2] A real option itself, is the right — but not the obligation — to undertake some business decision; typically the option to make, abandon, expand, or contract a capital investment. For example, the opportunity to invest in the expansion of a firm's factory, or alternatively to sell the factory, is a real call or put option, respectively.

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