Construct · 4 fields · 9 citations

Where does option collide?

One name. Different field. Different construct. One map.

● jingle · one word, four constructs Nearest construct by meaningcallcompare the meanings
How to read this

Every construct on the map is compared with every other by the meaning of its definitions, and the closest one is surfaced here. The nearest construct to option is call.

Hold this as a prompt, not a verdict. Two constructs sitting close in meaning is a reason to read them side by side and decide for yourself whether they are one idea under two names. It is not proof that they are. Compare the meanings in the Collider.

option4 CONSTRUCTSFinancial optionDE LA VEGA · CLAIMReal optionMYERS · FLEXIBILITYOption (act)SAVAGE · ACT IN A SETOption contractALI · OFFER HELD OPEN

Spokes are fields; dashed arcs are shared lineage. Tap a field for its definition, unit, and measures.

1688Financial option1954Option (act)1977Real option1981Option contract
2026

Drag to watch the word get claimed. Each field appears at the publication date of the earliest source cited for it. Tap a year to see which.

Finance

a contract granting the right, but not the obligation, to buy or sell an asset at a fixed price.

A financial option is a contract that gives its holder the right, but not the obligation, to buy or sell an underlying asset at a fixed price on or before a set date: the holder pays a premium for that right and exercises it only when doing so pays, so the payoff is contingent and asymmetric. Options of this kind were traded on the Amsterdam bourse and set out in detail in Joseph de la Vega's 1688 Confusión de confusiones, the first coherent account of call and put trading, long before any pricing theory. Black and Scholes's 1973 The pricing of options and corporate liabilities derived a closed-form value for such a contract from the price of the underlying asset, its volatility, the strike, the time to expiry, and the interest rate; Merton's 1973 Theory of Rational Option Pricing set the same result on general no-arbitrage foundations. The referent is a traded contingent claim priced by no-arbitrage, measured in currency, and it is not a course of action weighed in a decision, a firm's room to adjust a project, or the legal device that holds an offer open.[1][2][3]

Unit
A contingent claim on an asset, priced in currency
Recovery means
Not applicable
Measured by
Valued by option-pricing models such as Black-Scholes and observed as a premium quoted on an exchange

Strategy and management

the right, without the obligation, to take a future action on a real investment, such as expanding or abandoning it.

A real option carries the logic of financial options over to investments in real assets and managerial decisions: to hold a real option is to have the right, without the obligation, to take a future action, such as to expand, defer, abandon, or switch, so that flexibility under uncertainty has value beyond a project's expected cash flows. Myers's 1977 Determinants of corporate borrowing named a firm's growth opportunities real options, and McGrath's 1999 Falling forward developed real options reasoning as a way for managers to treat uncertain ventures as small, revisable bets, and Dixit and Pindyck's 1994 Investment under Uncertainty worked out how irreversibility and the value of waiting reshape when a firm should invest. The referent is the value of managerial flexibility, not a traded contract, a formal object of choice, or a promise to hold an offer open.[4][5][6]

Unit
The value of managerial flexibility under uncertainty
Recovery means
Not applicable
Measured by
Estimated by adapting option-pricing or decision-tree methods to a project's investment stages and sources of uncertainty

Decision theory

one of the mutually exclusive actions in an agent's choice set, chosen by a rule like maximising expected utility.

In decision theory and rational choice, an option is one of the courses of action available to an agent: the decision maker faces a choice set of mutually exclusive options and picks one according to a rule, such as maximising expected utility. Savage's 1954 The Foundations of Statistics formalised the objects of choice as acts, functions from states of the world to consequences, over which a rational agent holds consistent preferences; decision theory names these acts, alternatives, or options interchangeably. The referent is an abstract element of a choice set, defined by the consequences it yields, and it carries no premium, no market price, and no contractual force of its own.[7]

Unit
An available act in a choice set, defined by its consequences
Recovery means
Not applicable
Measured by
Represented formally as an act over states and ranked by a decision rule such as expected utility

Contract law

a promise that holds an offer open for a stated time, limiting the offeror's power to revoke it.

In contract law an option contract is a promise that holds an offer open, limiting the offeror's power to revoke it for a stated time: unlike a bare offer, which can usually be withdrawn any time before acceptance, an option contract binds the offeror, and at common law it typically requires its own consideration to be enforceable. The American Law Institute's 1981 Restatement (Second) of Contracts section 25 defines it as a promise that meets the requirements for forming a contract and limits the promisor's power to revoke an offer. The referent is a legal device that makes an offer irrevocable, enforced by a court, and it is not a priced claim, a project's flexibility, or an abstract object of choice.[9][8]

Unit
A promise that makes an offer irrevocable for a time
Recovery means
Not applicable
Measured by
Established by the elements of contract formation and, at common law, by consideration given for the offer's irrevocability

Next

Run it through the Collider, or take the citations with you.

See how option sits against neighbouring constructs in the Collider, or export every reference on this page in one click.

Open in ColliderExport BibTeXReport this collision

Nearby collisions

value6 fields · 12 citationsjingle · one name, six constructsrisk6 fields · 13 citationsjingle · one name, six constructseffectuation5 fields · 8 citationsjingle · one name, five constructs

References

  1. de la Vega, J. (1688). Confusión de confusiones. Amsterdam.
  2. Black, F., & Scholes, M. (1973). The pricing of options and corporate liabilities. Journal of Political Economy, 81(3), 637–654. https://doi.org/10.1086/260062
  3. Merton, R. C. (1973). Theory of rational option pricing. The Bell Journal of Economics and Management Science, 4(1), 141–183. https://doi.org/10.2307/3003143
  4. Myers, S. C. (1977). Determinants of corporate borrowing. Journal of Financial Economics, 5(2), 147–175. https://doi.org/10.1016/0304-405X(77)90015-0
  5. McGrath, R. G. (1999). Falling forward: Real options reasoning and entrepreneurial failure. Academy of Management Review, 24(1), 13–30. https://doi.org/10.5465/amr.1999.1580438
  6. Dixit, A. K., & Pindyck, R. S. (1994). Investment under uncertainty. Princeton University Press.
  7. Savage, L. J. (1954). The foundations of statistics. John Wiley & Sons.
  8. American Law Institute. (1981). Restatement (second) of contracts section 25. American Law Institute Publishers.
  9. Farnsworth, E. A. (2004). Contracts (4th ed.). Aspen Publishers. ISBN 9780735545403

Cited on this page?

Confirm your construct, or correct us.

If your work is cited behind one of these entries, you know better than we do whether we captured the meaning right. Confirm it, suggest an edit, or dispute it, and your name goes on the entry as an author who has checked it, linked to your ORCID.

Claim your construct