Real Options Valuation Calculator

Static NPV assumes you either commit today or walk away forever. Real options price the far more common case: the right, but not the obligation, to expand, abandon or delay.

Reading This Tool

How To Use This Calculator

Pick which kind of flexibility you're valuing, then set the project's value, cost, volatility and time horizon.

This prices the option on a 50-step binomial lattice, the same method behind American option pricing, just applied to a real investment instead of a listed contract. The sensitivity chart shows the result every real options course leads with: unlike static NPV, the value of flexibility rises as uncertainty rises, because you keep the upside and can walk away from the downside.

Your Inputs

Option Type

Current Project Value (PV Of Cash Flows) $20,000,000

Expansion Multiple 1.50x

Additional Investment To Expand $5,000,000

Volatility Of Project Value (σ) 35%

Risk-Free Rate 4.0%

Time The Option Can Be Exercised 3 yrs

Priced on a 50-step Cox-Ross-Rubinstein binomial lattice with early exercise checked at every node, so this correctly handles American-style flexibility, not just a European right to decide once at the very end.

Value Of Flexibility

Static NPV (No Flexibility)

Real Option Value

Total Value With Flexibility

Option Value As Volatility Rises

Real Option Value At Each Volatility Level

Assumes project value follows a lognormal random walk, the same core assumption behind Black-Scholes, and ignores competitive erosion of the option (a rival exercising a similar option first). Built to teach the shape of option value, not to substitute for a full decision-tree analysis.

Need the static case first, without the optionality?

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