This paper resolves the conceptual ambiguity of real option value and derives a model using risk-adjusted discount rates that can be applied to value the option to invest in a project. The approach adopts stochastic revenue and costs which provide a general solution with the added virtue of applicability. We found the option value arises from the difference between an individual investor and th...

99 words) To be relevant to a firm a real option needs to fit into a theory of the firm explaining its existence, exercise conditions and value. We make a step toward an option based-theory of the firm by describing the emergence of a firm’s options and the strategic building of new competences for exercising these options. We explain the creation of a real option as an entrepreneurial process ...

We propose structural models of investment for the econometric estimation of the real option markup. Count data models offer flexible specifications for bringing real option investment models to aggregate market data. The empirical results for oil tanker investment data are supportive for the proposed structural models, as well as the real option hypothesis. We find that the sensitivity of inve...