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Real Options Valuation

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http://www.business-spreadsheets.com/realopt.htm

Excel Real Options Valuation Template - For quantifying strategic opportunities.

Overview

 Real Options Valuation

The Excel Real Options Valuation Template brings together a collection of option valuation tools geared to quantify strategic value from uncertainty and risks in investment timing and economic environment dynamics. Real options valuation differs from the traditional discounted cash flow approach to valuation by quantifying assumptions based on the volatility of underlying cash flows of an investment or business. The Excel Real Options Valuation template provides analytical tools based on modified option pricing theory to evaluate investment strategy alternatives and estimate the value of undertaking them.

 

Key features of the Excel Real Options Valuation template include:

 

  • Input flow is assisted with information on each Real Options Valuation theory and detailed explanations for ease of interpretation.
  • The ‘Quick Start’ menu provides information for choosing the correct Real Options Valuation tool for the investment decision and associated opportunity to be analyzed and quantified.
  • The modified Black Scholes option pricing model is available to value the options to delay, expand, or abandon investment projects. Modifications to the traditional Black Scholes model include the accounting of dividends or cash flows from the underlying asset and the ability to exercise the option before the time in which the opportunity is expected to expire.
  • The Binomial tree option valuation model allows the creation of unlimited binomial option branches to evaluate complex strategic options with multiple critical decision stages. New binomial branch values flow back through the entire to the starting node.
  • The Game Theory model based on the Nash equilibrium theory is provided to determine the optimal strategy as a leader, follower or entering the market simultaneously in a competitive environment. Game theory analysis is suitable for evaluating market entry timing for new products or businesses.
  • Categorized investment and/or industry risk profiles are provided and can be modified to utilize across Real Options Valuation models as a proxy for risk assumptions. Applying standardized risk assumptions across multiple option valuations not only accelerates the analytical process but also provides a common benchmark for comparing business strategies.

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