A Tutorial for Modeling Real Options Lattices from Project Cash Flows

ABSTRACT Context: several methods for evaluating real options have been extensively studied and published. But recombining binomial trees, known as lattices, are perhaps one of the most practical intuitive approaches to model uncertainty price project managerial flexibilities applications. Although Cox, Ross, Rubinstein (1979) lattice is simple implement financial options, modeling lattices requires a different approach such proposed by Copeland Antikarov (2001), which considers cash flows dividends in model. Objective: this tutorial, we propose code an open-source software with guidelines help researchers practitioners from flows. Method: our correct project’s volatility estimation, dividend yield modeling, building. Results: results show how can affect value projects. Conclusions: contribution, tutorial provides mechanism analyzing investment opportunities projects that flexibility.