Evaluation of Investment Project Using Real Options Model

Real options have steadily gained in popularity for the past three decades with successful use-cases in risky projects and environments where degree of uncertainty is high. After the introduction of the Black–Scholes–Merton model in the early 1970s and its application to real asset valuation by Stewart Myers there were no significant developments in the way options are evaluated until Datar and Mathews developed a more intuitive method. Based on logic behind this method Collan et al. introduced an even more straightforward approach based on fuzzy arithmetic. In this thesis we focus on real option-based methods of evaluating projects. We conduct a research on how real option theory is used in the industry, write algorithms for real option valuation based on the most recent developments in the field and propose a graphical user interface that could contribute to a more widespread adoption of real option theory.