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bsop real option valuation -option to delay

AAgata5y ago
With the delay option, Pa is the sum of discounted cash flows but we do not discount the Pe to a point in time when it is being delayed?
John MoffatJohn MoffatTutor5y ago#1
In the formula, Pe is multiplied by e^(-rt) and this is in fact discounting Pe on a continuous basis (i.e. day by day rather than yearly as usual with discounting). So it is being automatically discounted which is why we don't need to discount it again :-)
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