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Hello, I have a question that I couldn’t find an answer to in any literature.
Suppose we have a company with multiple opportunities to expand, each dependant on the one before. For example: The company can do Project A with certain costs and revenues lasting one year. They can also follow up on this Project after a year with Project B with certain different costs and revenues. And so on for 5 years. Basically, this comes down to 5 sequential options to expand. If the company chooses to exercise the first expansion option, they then gain access to the second option. If that is exercised, the third becomes available and so on.
The problem I have find while studying appropriate literature is that all chapters on sequential options assume there are multiple stages with certain costs but only the last one brings revenue – whereas in the problem above, all stages bring both costs and revenues.
Is there a way to calculate this problem using a binomial lattice?
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