Acta Oeconomica Pragensia 2008, 16(4):3-11 | DOI: 10.18267/j.aop.120

Basic Areas of Utilization of Real Options to Manage a Firm

Hana Scholleová

Doc. RNDr. Ing. Hana Scholleová, Ph.D.; Katedra podnikové ekonomie, Vysoká škola ekonomická v Praze, scholl@vse.cz.

Real options as a right to future decision-making based on additional information from outside a company can be found everywhere, every company has the flexibility, but its value depends on volatility. It order to utilize it some selection is necessary as working with real options may bring more benefits than expenses. The first degree of selection is not caringe for decisions at high certainty or at risk with zero volatility, where the option value is close to zero. Real options give some answer as classical methods of DCF where decision-making cannot be deferred. As for options in low-budget projects, it may happen that the estimation of the project value will be higher than the direct capital costs. Real options are not a new method: they only enlarge the scale of classical methods, giving the possibility to evaluate a company's opportunities. Especially New Economy companies often use options without knowing their values, which could bring better efficiency to their decision-making processes.

Keywords: flexibility, volatility, real options

JEL classification: G30

Published: August 1, 2008  Show citation