Try to Use a New Valuation Approach: Application of the Real Options Pricing Method to an Aerospace Project

항공우주 거대산업 프로젝트의 가치평가에 대한 소고 - 실물옵션 가치평가법의 적용을 중심으로

This article describes a methodology for evaluating huge aerospace R&D investments using the real options pricing method. Option pricing has been proposed as a useful approach for modeling investment in R&D. Two important features of R&D investments are that an R&D project takes time to complete and that the outcome of R&D investments is highly uncertain. This makes the analysis of R&D investments difficult. Traditional tools for project evaluation, like IRR or the NPV, are inadequate for coping with the high uncertainty. Hence, In this article I propose a log-transformed binomal lattice method, and it will show that option pricing might be an adequate framework for evaluating such types of aerospace investments.