University of Hertfordshire

  • Nurgul Chambers
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Original languageOther
Pages (from-to)p.125-143
JournalAccounting Academicians Collaboration Foundation Publications, Accounting and Science World Journal,
Journal publication dateJun 2005
VolumeVolume 7
Issue No.2
Publication statusPublished - Jun 2005


Real options capture the value of managerial flexibility to adapt decisions to unexpected market developments. Companies create value by identifying, managing and exercising real options associated with their investment portfolio. The real options method applies financial options theory to quantify the value of management flexibility in a world of uncertainty. If used as a conceptual tool, it allows management to characterize and communicate the strategic value of an investment project. Traditional methods, such as net present value, fail to accurately capture the economic value of investments in an environment of widespread uncertainty and rapid change. The real options method constitutes a state-of-the-art technique for the valuation and management of strategic investments.

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