Real options applies the seminal concept of Black and Scholes to "real" assets (such as gold mines and oil wells) instead of to "paper" assets (such as stock options). There has been great benefit from introducing the real options viewpoint into the study of business problems, but we can go beyond.
Technically, real options and standard options theory depend on the fact that the asset to be valued is a derivative of an underlying marketed asset--gold as the underlying for gold mine operations, stock as the underlying for a stock option. In the short run the underlying asset can exactly duplicate the derivative. However, business projects generally are not derivatives. The fluctuations in their cash flows cannot be duplicated by marketed assets. Sound valuation of such projects requires that we go beyond real options theory--to general investment science.
Businesses face other issues as well: How to select a portfolio of projects, how to bundle and price products, how to fashion compensation plans, how to deal with price cycles, and many other issues. The real options viewpoint can be a useful beginning, but to fully address these issues one must again go beyond real options, using additional investment concepts.
This site is devoted to making the real options viewpoint truly useful,
by exploring its many advantages and by recognizing it limitations--then