Real Options Valuation

The Excel Real Options Valuation template combines a set of option pricing tools and valuation models to quantify the embedded strategic value existing and proposed project and investment scenarios.

Traditional discounted cash flow investment analysis only accepts investments if the returns on the project exceed the hurdle cost of capital rate. This is a valid exercise as input for valuing real options; however it disregards any strategic options that are commonly associated with many investment project decisions.

Real options valuation provides the ability to identify what options potentially exist within a business proposal and the valuation means to estimate the quantification of them. The real options valuation template combines ease and flexibility of assumptions input with embedded help prompts to assist with selecting the correct option valuation model for the investment decision.

Modified Black Scholes option pricing models are provided to value the options to delay, expand or abandon proposed of existing business streams or investments. An unlimited branch binomial option tree builder model can be employed to evaluate complex strategic options with multiple decision stages. The Nash equilibrium game theory option model evaluates market entry strategies in a competitive environment with clear results on whether to lead, follow or enter the market simultaneously with competitors.

Historical investment and/or industry risk profiles can be utilized across real options valuation models as a proxy of underlying cash flow risk for the analyzed investment. Industry volatility data from publicly traded equity can be updated and modified to set risk dynamics for particular business environments.

The Real Options Valuation template is compatible with Excel 97-2013 for Windows and Excel 2011 or 2004 for Mac as a cross platform real options valuation solution.