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Finance Article | Real Options Valuation for Risky Projects

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Real Options Valuation for Risky Projects

- by Jyoti Singh *

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The project is divided into financial and technological parts for valuation. The overall process begins with a set-up phase and ends with a sensitivity analysis of the results of the evaluation to many assumptions associated with any significant investment. The crux of the evaluation is the analysis in the middle of the process. This is the portion that is split into financial and technological parts. (See Figure 2 and Table 1)



Figure 2: Splitting the analysis into financial and technological part is the key feature of hybrid option analysis.

The crucial analysis phase of the evaluation involves two elements: -

  • collection of appropriate data

  • processing of this information in standard methods



    Table 1: Practical process of evaluating the developments of products and projects. Divides the responsibilities for analysis among groups most knowledgeable about market and technology risk.

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    * Contributed by -
    Jyoti Singh,
    PGDBM 2006,
    IMT, Ghaziabad.

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