Real Option Models in Corporate Finance

ABOUT THIS CONTENT

In this section, you will find three basic real option models - the option to delay, the option to expand and the option to abandon. In addition, the value of financial flexibility is considered as an option.

Spreadsheets included:
• expand.xls - This model estimates the value of the option to expand in an investment project. Modified, it can also be used to assess the value of strategic options.

• delay.xls - This model estimates the value of the option to delay an investment project.

• flexval.xls - This model estimates the value of financial flexibility, i.e, the maintenance of excess debt capacity or back-up financing.

• abandon.xls - This model estimates the value of the option to abandon a project or investment.