A Real Option is the right - but not the obligation - to perform certain business initiatives in a capital investment project. While a fragile system breaks under stress, the antifragile becomes stronger with added stress. The antifragile is immune to prediction errors.
"Antifragile" was introduces by NN Taleb in his book Antifragile: Things That Gain from Disorder. The anti fragile is beyond the "resilient" or "robust". Antifragility gains from volatilities and uncertainty by learning from turbulences. Ways to the antifragile include stressors, optionality, redundancy, less-is-more, tinkering, …
You can buy antifragility. Options have value.
In finance, antifragility needs fragility, because hedgers need speculators as counter party, who accept the fragile side of a contract. The difficult thing about this web on a global level is transparency: who has what fragile/antifragile position and how do those positions cross-connect to fragility concentration or fragility diffusion and buffering.
Real options are different. They usually pertain to tangible assets such as capital equipment, rather than financial instruments. There are real options relating to project size, life and timing and operation. They are not a derivative instrument, but an actual option.
Maximize the value of a project
Whilst financial options can help to optimize the risk of a portfolio, real options can help to maximize the value of a project by managing uncertainty and create value through flexibility.
Real options is the underlying principle of agile practices. Consequently they should be used in innovation.
Real Options - the underlying principle of Open Innovation
Open Innovation, in short, names the paradigm of in-licensing and out-licensing to accelerate internal innovation, and expand the market for external use, respectively - UnRisk has applied this paradigm with amazing success.
With this experience and partnering with real options experts we help innovators maximize the values of their investment projects utilizing the latest real options valuation technology.
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