Optimising Warship Lifecycle Value: A Real Options Approach

With diminishing budgets, rapid technological advancements and evolving operational requirements, it is crucial that effective cost and risk mitigation models are utilised in warship lifecycle management and upgrade planning. This research introduces and adapts a real options analysis model, the Black-Scholes formula, in an attempt to optimise decision-making and warship upgrade planning. Existing literature on the application of real options analysis faced limitations due to not adequately addressing the unique nature of naval assets or accounting for factors that did not directly translate from finance to warship upgrade planning. To account for these limitations, relevant variables in the Black-Scholes model are adapted for use in a naval setting.