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Abandonment Option

What is 'Abandonment Option'

A clause granting parties the option of withdrawing from the contract before the fulfillment or completion of all contractual duties. This clause adds value by giving the parties the ability to end the obligation if it is unprofitable.

Explaining 'Abandonment Option'

Abandonment options are commonly used in bilateral agreements without a set time frame for expiry. Usually, one party may decide to exit from the relationship without penalty.


Further Reading


Investor valuation of the abandonment option
www.sciencedirect.com [PDF]
We investigate whether investors price the option to abandon a firm at its exit value. Theory prices this real option as an American put with both a stochastic strike price (exit value) and a stochastic value of the underlying security (the value of cash flows). The empirical …

Profits versus losses: Does reporting an accounting loss act as a heuristic trigger to exercise the abandonment option and divest employees?Profits versus losses: Does reporting an accounting loss act as a heuristic trigger to exercise the abandonment option and divest employees?
meridian.allenpress.com [PDF]
We investigate whether investors price the option to abandon a firm at its exit value. Theory prices this real option as an American put with both a stochastic strike price (exit value) and a stochastic value of the underlying security (the value of cash flows). The empirical …

The effects of abandonment options on operating leverage and investment timingThe effects of abandonment options on operating leverage and investment timing
www.sciencedirect.com [PDF]
We investigate whether investors price the option to abandon a firm at its exit value. Theory prices this real option as an American put with both a stochastic strike price (exit value) and a stochastic value of the underlying security (the value of cash flows). The empirical …

The effects of abandonment options on operating leverage and forward hedgingThe effects of abandonment options on operating leverage and forward hedging
www.sciencedirect.com [PDF]
We investigate whether investors price the option to abandon a firm at its exit value. Theory prices this real option as an American put with both a stochastic strike price (exit value) and a stochastic value of the underlying security (the value of cash flows). The empirical …

Valuation of the minimum revenue guarantee and the option to abandon in BOT infrastructure projectsValuation of the minimum revenue guarantee and the option to abandon in BOT infrastructure projects
www.tandfonline.com [PDF]
We investigate whether investors price the option to abandon a firm at its exit value. Theory prices this real option as an American put with both a stochastic strike price (exit value) and a stochastic value of the underlying security (the value of cash flows). The empirical …

Real options methodology in public-private partnership projects valuationReal options methodology in public-private partnership projects valuation
www.doiserbia.nb.rs [PDF]
We investigate whether investors price the option to abandon a firm at its exit value. Theory prices this real option as an American put with both a stochastic strike price (exit value) and a stochastic value of the underlying security (the value of cash flows). The empirical …

Real options and interactions with financial flexibilityReal options and interactions with financial flexibility
www.jstor.org [PDF]
We investigate whether investors price the option to abandon a firm at its exit value. Theory prices this real option as an American put with both a stochastic strike price (exit value) and a stochastic value of the underlying security (the value of cash flows). The empirical …

Financial engineering in project managementFinancial engineering in project management
journals.sagepub.com [PDF]
We investigate whether investors price the option to abandon a firm at its exit value. Theory prices this real option as an American put with both a stochastic strike price (exit value) and a stochastic value of the underlying security (the value of cash flows). The empirical …



Q&A About Abandonment Option


What does "real" mean?

"Real" means having substance or reality; actual rather than hypothetical; practical rather than theoretical; genuine rather than false or counterfeit."

What is abandonment option?

Abandonment option is a clause granting parties the option of withdrawing from the contract before fulfilling or completing all contractual duties.

What does "option" mean?

An option is a contract which gives its owner (the holder) the right but not obligation to buy or sell an underlying asset at an agreed price within a specified time period."

How do you use abandonment options in contracts?

Abandonment options are usually used in bilateral agreements without a set time frame for expiry. One party may decide to exit from the relationship without penalty.

Who can benefit from this type of clause?

This type of clause is commonly used in bilateral agreements without a set time frame for expiry. Usually, one party may decide to exit from the relationship without penalty.

What does this type of clause add value to?

This type of clause adds value by giving the parties the ability to end the obligation if it is unprofitable.

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