Investment Decision Under Uncertainty Based On Real Option

As the economic environment is becoming more and more variational and uncertain, more and more researchers and actual practice workers find that the traditional decision methods, represented by NPV principle, are far away from companies' real investment de-cisions and can not satisfy the need of companies' investment decisions. Traditional deci-sion methods don't change along with market environment, neglecting of the irreversibil-ity, uncertainty and delay of the project, it needs a more scientific and effective method urgently. Real option analysis emphasizes the uncertainty of investment return, the sub-mergence of investment cost and the flexibility of investment timing, providing a totally new investment decision method for the company. Therefore, the research on real option must have important theoretical meanings and practical value.Firstly, this thesis introduced the traditional decision methods and its limitation, brought forwards the real option, and introduced the definition, development, classification and na-ture of the real option. Secondly, it briefly introduced four kinds of real option pricing methods:binomial tree method, Black-Scholes model, dynamic programming and com-pared pricing method. On the basis of option pricing method, it examined the effect of uncertainty on the investment decision, and combined with case, that is the effect of uncer-tainty on cartel behavior, examined the effect of volatility on the investment timing. Due to the difference between standard brown motion and asset price, this thesis analyzed the effect of uncertainty and Hurst index on the investment decision under the suppose that the asset price was submitted to fractional brown motion.Finally, we concluded in chapter 6, and briefly introduced the future studies.