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Real Options Analysis (Second Edition) provides a novel view of evaluating capital investment strategies by taking into consideration the strategic decision-making process. The book provides a qualitative and quantitative description of real options, the methods used in solving real options, why and when they are used, and the applicability of these methods in decision making. In addition, multiple business cases and real-life applications are discussed. This includes presenting and framing the real options problems, as well as introducing a stepwise quantitative process developed by the author for solving these problems using the different methodologies inherent in real options. Included are technical presentations of models and approaches used as well as their theoretical and mathematical justifications. The book is divided into three parts: the qualitative discussions of real options; the quantitative analysis and mathematical concepts; and practical applications. The first part looks at the qualitative nature of real options, providing actual business cases and scenarios of real options in the industry, as well as high-level explanations of how real options provide the much-needed insights in decision making. The second part of the book looks at the step-by-step quantitative analysis, complete with worked-out examples and mathematical formulae. The third part illustrates the use of the Real Options Valuation’s Super Lattice Solver software and Risk Simulator software both developed by the author and included in the enclosed CD-ROM (standard 30-day trial with extended academic license). In this section, more detailed business cases are solved using the software.

This second edition provides many updates including:

  • A trial version and introduction to the Super Lattice Solver software that supersedes the author’s older Real Options Analysis Toolkit software (all bugs and computational errors have been fixed and verified).

  • A trial version and introduction to the Risk Simulator software also created by the author.

  • Extended examples and step-by-step computations of American, Bermudan, European, and Customized options (including abandon, barrier, chooser, contraction, expansion, and other options).

  • More extensive coverage of advanced and exotic real and financial options (multiple-phased sequential compound options, complex sequential compound option, barrier options, trinomial mean-reverting options, quadranomial jump-diffusion options, pentanomial dual-asset rainbow options, multiple-asset with multiple-phased options, engineering your own exotic options, and so forth).

  • Extended real options cases with step-by-step worked out solutions using the Super Lattice Solver software.

  • Several brand new case studies on applying real options in the industry.

  • An extended discussion on volatility estimates, risk, and uncertainty.

This book is targeted at both the uninitiated professional as well as those well-versed in real options applications. It is also applicable for use as a second-year M.B.A. level textbook or introductory Ph.D. reference book.


"This book is a must have and must read... Dr. Mun’s new book is a refreshing, cutting-edge look at a powerful new decision-making process... it isn’t often you can truthfully say a book breaks new ground, but [this book] has certainly done that."

Glenn G. Kautt, President, Monitor Group, Inc. (USA)

“Many books on real options can be intimidating. Dr. Mun offers a pragmatic, reliable and entertaining guide. Complex concepts and formulas are brilliantly interspersed with well chosen examples and step-by-step walk through from a variety of industries.”

Shota Hattor, President and CEO, Kozo Engineering, (Japan)

“Real Options Analysis is the clearest book on real options that we have read to date. It does an excellent job of demystifying a difficult and complex subject. It provides a solid basis for conceiving, assessing and evaluating real option investments, which will make it useful to practitioners and students alike.”

Prof. Ian C. MacMillan, Ph.D., Professor, The Wharton School of the University of Pennsylvania (USA)

"Tthe clarity and comprehensive coverage makes it the best guide for all practitioners... coupled with state-of-the-art financial tools CD-ROM."

Michael Sim, Partner, Moores Rowland International (Hong Kong)

"Dr. Johnathan Mun certainly has earned the reputation of being an expert on the subject... consultants, analysts, decision-makers and engineers will be all over this book and its software."

Phyllis Koessler, Managing Director, Koessler and Associates (Switzerland)

"Finally, a real options analysis book that is technically sophisticated enough to be useful, and practically written so that it can actually be used. It is destined to become the handbook of real options."

Tracy Gomes, CEO, Intellectual Property Economics (USA)

"Dr. Mun demystifies real options analysis and delivers a powerful, pragmatic guide for decision-makers and practitioners alike. Finally, there is a book that equips professionals to easily recognize, value, and seize real options in the world around them."

Jim Schreckengast, Sr. Vice President, R&D Strategy, Gemplus International SA (France)

"Written from the viewpoint of an educator and a practitioner, his book offers a readable reference full of insightful decision-making tools to satisfy both the novice and the experienced veteran."

Prof. Richard Kish, Ph.D., Associate Professor of Finance, Lehigh University (USA)

"Dr. Mun has converted his tacit financial knowledge into a digestible user-friendly book. He effectively leads the reader on a solid path starting from discounted cash flow, progressing through Monte Carlo analysis and evolving to real options to get even closer to the target of achieving confident corporate decisions. His ability to clearly explain the relationships of popular competing analysis methods will make this a must have reference book for today's decision makers."

Prof. Ken English, Director of R&D, The Timken Company (USA)

"The book leads the field in real options analytics and is a must-read for anyone interested in performing such analyses. Dr. Mun has made a formidable subject crystal clear and exponentially easy for senior management to understand. Monte Carlo simulation and real options software alone is worth the book price many times over."

Morton Glantz, Renowned educator in finance, author of several books, financial advisor to government (USA)