How can we apply the knowledge of traditional option pricing

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Reference no: EM131903643

(1) In many business decision scenarios, managers faces the dilemma, for example, whether to continue the project or to abandon it, whether to finance a project with debt or equity, etc.

How can we apply the knowledge of traditional option pricing techniques in such decisions that involve real impact on the cash flows of a business?

(2) Many academics strongly advocate using real options in valuation of intangible assets. See, for example, this article (Dealing with Intangibles Damodaran.pdf).

Although the article does not talk about real options, it shows how tricky it is to value such intangible asset as the company's reputation (or its loss).

Nevertheless, this method is not used in practice very often. In your opinion, what are the reasons for not seeing real option valuations of intangibles more often?

Reference no: EM131903643

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