Investments under pressure

Abstract

This paper presents a study to define the use of real options to be prepared for challenges that arise when faced with rapidly changing conditions, which take on characteristics of an emergency and require investment decisions. Related to time, real options can be used as a time-saving and efficiency-enhancing support for investments decisions in assets in response to fast changing situations. Related to uncertainty, real options facilitate decision makers to acquire more information about this uncertainty before having to make an investment decision. By building option pricing into a decision making framework to evaluate investment opportunities, one can add additional financial insight to the investment decision making process. Pressure on decision making with regard to investments in assets during rapidly changing situations could be reduced or mitigated when the decision maker has developed a set of options. Furthermore, use of real options supports more integral decision making and consequently allows for more focus on efficiency in decision making related to assets. Finally, time can be saved if such a situation occurs.