Abstract
Option pricing applications in capital budgeting decisions are still in the development stage. This paper uses concepts and methods from option pricing theory to evaluate real projects rather than financial ones. Within a petroleum projects context such real options include development and operations of satellite fields, break-even values of incremental capacity, and flexibility value with compound development and operations options. The option pricing results may be quite different from those obtained by traditional capital budgeting and decision tree approaches. Some related papers on real options are also briefly noted.
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