Real options as an alternative methodology to assess investment projects

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Armando Lenin Támara Ayús https://orcid.org/0000-0003-3619-5164
Raúl Enrique Aristizábal Velásquez

Keywords

Real Options, Financial Options, Binomial Trees.

Abstract

This paper aims to broaden the applicability of the assessment methodology of investment projects through real options as a key element for investment decision making. Traditional project valuation methodologies are described and their gaps, which special characteristic is uncertainty, are presented. A parallel between financial and real options that could be used for valuation is made, using the binomial tree method. Finally, a case study in the construction sector shows a project valuation using expand and waiting options.

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