Managing Risks of Supply-Chain Disruptions: Dual ... - CiteSeerX

4.1.3 Option ValueJust like a financial option, a real option is an asymmetrical asset because it gives its purchaser theright, but not the obligation, to exercise it. The option holder has the possibility to take advantageof opportunities without having to cope with unfavorable situations. For example, the holder of alease can choose to exploit if the demand for this ore is high, or on the contrary to give upexploiting if other layers of better quality, at a reduced cost of exploitation, were discoveredmeanwhile. This is what gives value to the option, as also illustrated on Figure 4.1.ProbabilitydistributionOriginal DistributionNew distribution using optionLossesProfitsPut Options permitto avoid big lossesCall Options permit to takeadvantage of opportunitiesFigure 4.1: Origin of Real Option ValueReal Options match the active way managers operate business and add value as they introduceflexibility that is highly valuable in case of uncertainty. In system design for example, real optionthinking is crucial. Engineers are very sensitive to risk minimization, and introduce flexibility inthe design of the system so that it continues to work in many different situations.35