Call Option Valuation Case
In the above linked video, Alex reviews a project where he had to evaluate a non-standard call option.
The company had a business with long, ~ 2 years, construction projects in which they build a type of capacity for their customers. The customer had high uncertainty for demand on the time horizon of completion for the construction; therefore, they requested to buy optionality in the project so that they would have the flexibility to purchase additional capacity at a later date without the long lead time.
Alex was tasked with pricing the optionality. As this contract was not one that's traded on an exchange, Black Scholes was not expected to be effective and alternative valuation methodology had to be pursued. Thanks to that valuation work, the company won a contract worth an 11% division revenue increase. If you have any additional questions, please feel free to reach out to Alex.