New real option pricing model revolutionizes investment decision analyses!
A new real option pricing model based on sunk cost characteristics has been developed to more accurately estimate the value of real options. Real options have unique features, like sunk costs, that distinguish them from financial options. By incorporating sunk costs into the pricing model, it was found that the Black-Scholes model overestimates the value of real options. This new model provides a more precise way to analyze investment decisions involving real options.