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| Real options, which are pervasive in business, are not captured by net present value analysis. Chapter 8 valued real options via decision trees. Given the work on options in the previous chapter, we are now able to value real options according to the Black–Scholes model and the binomial model.
In this chapter, we described and valued four different types of options: Executive stock options, which are technically not real options.We tried to keep the presentation simple and straightforward from a mathematical point of view. The binomial approach to option pricing in Chapter 22 was extended to many periods. This adjustment brings us closer to the real world because the assumption of only two prices at the end of an interval is more plausible when the interval is short. |