In this website section are presented some selected FAQ's (frequently asked questions) on real options, using in most cases multimedia resources to explain (visual answer to the FAQ's, or simply Visual FAQ's).
The FAQ's list has an option to expand! So, new FAQ's will be added by exercising the option to update the website! Contributions are welcome.
The FAQ's list:
FAQ number 0: What is the "real options approach" to capital budgeting?
FAQ number 1: Is the real options premium important?
FAQ number 2: What are the effects of interest rate, volatility, and other parameters in both option value and the decision rule?
FAQ number 3: Where the real options value comes
Why real options value is different of the static net present value (NPV)?
FAQ number 4: Does risk-neutral valuation mean
that investors are risk-neutral?
What is the difference between real simulation and risk-neutral simulation?
FAQ number 5: Is possible to use real options for
What changes? What are the possible ways?
FAQ number 6: Is true that mean-reversion always reduces the option premium?
What is the effect of jumps over the option premium?
FAQ number 7: How to model the competitor entry effect in my investment decisions?
FAQ number 8: Does Real Options Theory (ROT) speed up the firms investments or slow down investment?
FAQ number 9: Is possible to recommend investment on a negative NPV project using real options?
FAQ number 10: Is the options decision rule
(invest at or above the threshold curve) the policy to get the maximum
How much value I lose if I invest a little above or below the optimum threshold?
FAQ number 11: How real options see the choice of mutually exclusive alternatives to develop a project? UPDATE!
FAQ number 12: Will the total volatility of the model be increased if I add others sources of uncertainty?
FAQ number 13: How to write a risk-neutral process for mean-reversion?
FAQ number 14: How to combine technical and market uncertainties into a dynamic real options model?
FAQ number 15: What are the advantages of the Quasi Monte Carlo approach over the traditional Monte Carlo?