The literature on real research and development (R&D) options is long and distinguished, starting shortly after the literature on financial options in the 1980s. Like financial options, there is conceptually an underlying asset, or liability, that determines the option value at termination. However, unlike financial options, real R&D options are not (yet) commonly traded, are often difficult to identify, with possibly few comparables and limited public information, and may involve complex methods for valuation. Many R&D projects are not proprietary (until perhaps patented), so competition and first-mover advantages/disadvantages must be considered. Some of the differences between financial and real options have diminished as R&D tracking stocks and synthetic real options are traded, sometimes linked to specific identifiable indices and valued using common option pricing methodology. Real R&D option theory has been applied to a wide variety of characteristic aspects of projects, including timing of investment expenditures in monopoly and competitive environments, choices in R&D budgets, sequential alternative actions, follow-on investment opportunities, and flexibility in R&D project development. © 2003 Elsevier Ltd All rights reserved.