[3] Contingent claims are applied under financial economics in developing models and theory, and in corporate finance as a valuation framework.
In financial economics, contingent claim analysis is widely used as a framework both for developing pricing models, and for extending the theory.
The fundamental premise here, is that “discounted cash flow models tend to understate the value of assets that provide payoffs that are contingent on the occurrence of an event.
Typical corporate finance "project" valuations would include patents, undeveloped natural resource reserves, and contingent value rights – all of these exhibiting optionality.
Funding dependent, corporate financial investments and special purpose entities also often inhere optionality and must then be modeled correspondingly.