Bridging Decision Analysis and Real Options for Practical Valuation

This paper addresses the challenges of applying complex financial option models to real-world investment decisions. It critiques traditional assumptions, such as perfect market liquidity, and proposes a decision analysis approach for real options valuation. By focusing on opportunity loss and using simpler stochastic models, the method becomes more accessible to practitioners. The paper advocates for blending practical decision-making with risk-neutral valuation techniques to better capture investment flexibility​.