Summary

The proper valuation of strategic options is as important as it is difficult. The fact that the Strategic options are first step to valuing your real options is to recognize them does not mean that the rest is easy. tough to va|ue.

Strategic options become both economically more important and more difficult to value when there are many periods and many possible economic scenarios. Valuation is especially difficult if your decisions in each time period cannot be made independently but in turn depend on possible futures. For example, if it costs money to close and reopen a plant, then your decision to close the plant must also depend on your assessment of how quickly the product price will recover. If there is a good chance of recovery soon, you may choose to operate the plant even at a small loss right now. In such problems, the optimal decision rule itself can be very difficult to find.

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