Why does BlackScholes, when applied to real options, have trouble dealing with negative cash flows?

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Why does Black–Scholes, when applied to real options, have trouble dealing with negative cash flows?

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Infrastructure Investment An Engineering Perspective

ISBN: 9781466576698

1st Edition

Authors: David G. Carmichael

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Question Posted: Oct 26, 2024 06:00 AM

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Why does BlackScholes, when applied to real options, have trouble dealing with negative cash flows?
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Would you anticipate the difference between the approach given and BlackScholes to increase with increasing feasibility, , and interest rate, r?
How sensitive would you anticipate real option values to be with different assumptions on cash flow correlation?
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Why does BlackScholes, when applied to real options, have trouble dealing with negative cash flows?

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Infrastructure Investment An Engineering Perspective

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