Unlike call options, the option to abandon a real asset project does not become more valuable as time to expiration increases.

Question

Quizplus · Accepted Answer

The statement is false. The option to abandon a real asset project becomes more valuable as time to expiration increases, as the flexibility to abandon the project allows for the avoidance of potential losses or liabilities. As time passes, there may be changes in market conditions, technological advancements, or unforeseen events that could impact the project's profitability or feasibility. The option to abandon provides a form of insurance against these risks, and its value increases as the project progresses and more information about future uncertainties becomes available.

Unlike Call Options, the Option to Abandon a Real Asset