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Real Options
Real Options
The option to abandon is more valuable the greater the volatility of cash flows for
a project. The abandonment option, like other real options, lets the good times roll
while mitigating the effect of bad outcomes by exercise of the option. To the
extent the option has value, it may change a reject signal for a project into an
accept signal.
3. The option to postpone, also known as an investment timing option. For some
project there is the option to wait, thereby obtaining new information. By waiting,
you obtain new information on the market, on prices, on costs and perhaps on
other things.