Compare methods

	Real Options Valuation	Binomial Option Pricing
Field	Economics	Finance
Family	Process / pipeline	Regression model
Year of origin	1994	1979
Originator	Stewart Myers (term); Dixit & Pindyck, Trigeorgis (theory)	John Cox, Stephen Ross & Mark Rubinstein
Type	Valuation of managerial flexibility under uncertainty	Discrete-time lattice option-pricing model
Seminal source	Dixit, A. K., & Pindyck, R. S. (1994). Investment Under Uncertainty. Princeton University Press. ISBN: 9780691034102	Cox, J. C., Ross, S. A., & Rubinstein, M. (1979). Option pricing: A simplified approach. Journal of Financial Economics, 7(3), 229–263.
Aliases	Real Options Analysis, ROV, Real Option Pricing, Investment Under Uncertainty	binomial tree model, Cox-Ross-Rubinstein model, CRR model, lattice option pricing
Related	3	4
Summary	Real options valuation applies the theory of financial options to real (physical, strategic) investment decisions, valuing the managerial flexibility to defer, expand, contract, switch, or abandon a project as uncertainty resolves over time. Where standard discounted-cash-flow analysis assumes a now-or-never commitment to a fixed plan, real options recognize that managers hold rights — not obligations — to act, and that this flexibility has value precisely because the future is uncertain. Using option-pricing and dynamic-programming methods, the approach values these embedded options and identifies the optimal timing and conditions for exercising them.	The binomial option pricing model, introduced by John Cox, Stephen Ross, and Mark Rubinstein in 1979, prices options by modelling the underlying as a discrete tree in which the price moves up or down by fixed factors at each step. Working backward from the option's payoff at maturity using risk-neutral probabilities, it produces a no-arbitrage price that converges to Black-Scholes as the number of steps grows — while naturally handling American early exercise, which the closed-form formula cannot.