Real Options

Real Options


Real option is a right, not an obligation, to take action on an underlying real asset. When we say “real asset” we usually mean a project, whereby future action may refer to the abandonment of a project, its expansion, deferment or some other decision. Real options are therefore managerial flexibility options inherent in many types of projects and very valuable for management or investors as they increase the net present value of a project.

The most significant characteristic of a real option is that a limited commitment creates future decision rights. The increased managerial flexibility and potential future benefits thus arising in many cases make the difference between feasible and non-feasible projects.

Real options were first introduced to the literature by Myers in 1977 as an extension of financial options pricing to non-financial (i.e. real) investment opportunities with managerial flexibility under dynamic market uncertainty. Nowadays the real options valuation methodology is applied to a wide variety of industries like the industry of the oil and gas exploration and production, the car and manufacturing industry, the computer industry, the airline industry, the telecommunications industry, the utilities industry, the real-estate industry, the infrastructure maintenance strategy, the human resource management, the information technology and others.

Real Options Valuation (ROV) or Real Options Analysis (ROA) is a common name for various modelling approaches that are used for the valuation of real options. The major difference between approaches is that they can be either discrete-time or continuous-time, which refers to the time step that is used in each calculation. The lattice approach is discrete-time, while closed-form equations like the Black-Scholes model and others are continuous-time.


At Real Options Consulting Ltd, we are merging real options and PPP.


Real Options Consulting Ltd is a company specialized in the valuation of risks and real options in infrastructure Public-Private Partnership projects.

We bring to our clients the best of theory and practice of Real Options and Public-Private Partnership with the purpose of creating the most suitable solutions for them.

Contact Us

Real Options Consulting Ltd 20-22 Wenlock Road, London, N1 7GU
United Kingdom
Email: [email protected]
Phone: +44 70 2403 4340