The Author shows that modelling the uncertain cash flow dynamics of an investment project
deserves careful attention in real options valuation. Focusing on the case of commodity price
uncertainty a broad empirical study reveals that contrary to common assumptions prices are
often non-stationary and exhibit non-normally distributed returns. Subsequently more realistic
stochastic volatility jump diffusion and Lévy processes are evaluated in the context of a
stylised investment project. The valuation results suggest that stochastic process choice can
have substantial implications for valuation results and optimal investment rules.
