Real Options Theory

Real Options Theory is a framework that helps businesses make investment decisions by treating them like financial options. Just as stock options give the right to buy or sell shares at a set price, real options allow companies to invest in projects, delay decisions, or abandon them, depending on how conditions evolve. This approach recognizes the value of flexibility and the ability to adapt to changing circumstances, enabling better management of risks and opportunities associated with investments in real assets, such as properties or technologies. Ultimately, it aids in maximizing the potential return on investments.