Optional approach to evaluation of investment projects: formation and essence

At the beginning of the twenty-first century, the financial structure of companies became more complicated in many ways, there were changes in the economic environment of the market. The new, rapidly changing economic conditions have forced the economic community to be wary of traditional approaches based on mathematical models, methods of analyzing net present value and analysis of discounted cash flows. In traditional models of investment analysis, the premium is associated with certainty and some expected scenario of changes in cash flows, which is unlikely for most investment projects. However, the real world is characterized by uncertainty and significant changes in market conditions, even in the short term. In this connection, the company’s management should have flexible tools when receiving new information and reducing uncertainty about the market situation, for rapid response and changing the initial operating strategy, in order to benefit from favorable future opportunities or reduce current losses. All this has determined the need for qualitatively new approaches to the analysis and management of investment projects, especially in the venture business, since these projects have a direct impact on the company’s value. This flexibility is characteristic of financial options, and in the field of investment valuation - real options. In this regard, traditional models of investment analysis can be supplemented, and in some cases replaced by alternative approaches, for example, the method of estimating the current value of a call (put) option using the Black-Scholes-Merton formula.