Analysis of Studies from 2000-2010 in Real Option Theory and Application to OM

Traditional project investment methods, such as the discounted cash flow (DCF) with a fixed static plan, are no longer sufficient to assist the corporate strategies of seizing opportunities and profitability. The option pricing formula includes a theoretical framework for pricing financial options, assuming that the risk in a financial hedged position is zero, if the option is adjusted continuously in a short position. Hence, the real options revolution arose in response to the dissatisfaction of corporation practitioners with traditional capital budgeting techniques, such as standard discount cash flow. This paper analyzes relevant articles from the “Journal of Operations Management” and “Management Sciences” as related to real options theory in the field of operations management. The goal of this study is to review and identify the gaps in application to real option theory in their studies. Finally, this paper provides suggestions for future researchers.