Valuation of real options : construction of a model to evaluate real investment projects

In this thesis I use two existing models to construct a model that can evaluate the exploration phase and the production phase of a real investment project simultaneously. I assume that the value of the production phase is the value of the outcome of an exploration project and can therefore make a model that combines the two phases. I assume that the exploration phase has on-going investment costs until completion and that the time to completion is uncertain. I allow the exploration project to shift between an active and a passive state and the production can be shut down and restarted whenever this is optimal. The model is applicable for R&D projects and natural resource exploration projects such as mine or oil exploration projects