A Glossary of Terms

Active learning: Learning about the market uncertainty by actively investing up front in market surveys, focus group studies, etc.
Aggregate volatility factor: A single volatility factor that accounts for the cash flow uncertainties related to several variables, such as unit price, quantities expected to be sold, margins, etc.
American option: An option which can be exercised at any time on or before its expiration date.
Arbitrage: Inefficient market conditions that allow you to buy an asset at one price and simultaneously sell it at a higher price.
At the money: A call or put option is at the money if the underlying asset value is equal to the strike price.

Barrier call option: A simple call option where a barrier price is set at a value higher than the exercise price, and the option goes into the money when the asset value exceeds the barrier price.
Barrier price: The price that dictates whether a barrier option is in or out of the money. The option is in the money if the asset value is above (for a call) or below (for a put) the barrier price.
Barrier put option: A simple put option where a barrier price is set at a value lower than the exercise price, and the option goes into the money when the asset value dips...

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Project Valuation Using Real Options: A Practitioner’s Guide