A Valuation Method for Multi-Stage Development Projects

A real-option based valuation method has been developed for multi-stage development projects which allow flexible stage-wise go/stop judgments. The proposed method measures the economic value of projects from potential future cash flow produced by them, and is characterized by following four functions: (1) Corporation of technical and market risks into project valuation, (2) Quantification of a project portfolio value, (3) Modeling of correlation between individual projects in a portfolio, and (4) Control of project portfolio risk with a risk index.