Real option includes TIME OPTION, ABONDANCE OPTION…ect. Are they trading like regular option?
please add some comment
That has nothing to do with regular options, like on stocks and bonds. These are terms used in capital budgeting to describe options available when deciding on projects.
They are not trading. they are simply the cost of choices that the firm has available and should be able to assess.
abandonment option just means you’ve got a project ongoing and sometimes it’s better to abandon it half way through (and lose the money you’ve already spent and whatever it costs to shut it down) than to see it through to completion
While I know that those options aren’t at all like the regular ones (ie. on securities), can’t we use BSM to value them nonetheless?