Options Pricing Theory And Investment Under Uncertainty

In this paper, I introduced a new method, namely the contingent claims analysis or real options analysis (ROA) for the decision-making of investment under uncertainty. Beginning with financial options, I introduced the relationship between financial options and real options, and then made a comparison between ROA and the NPV method which is popular now in decision-making of investment, and through two examples, illustrated how to solve for the values of real options by various methods, such as binomial trees and definite difference methods. But my focus was specially laid on the decision-making of investment under uncertainty and with competition, I first .extend the basic model of Dixit & Pindyck's by allowing the relevant parameter to be a random variable, then proposed an numerical example to show how to solve this model, I gave the algorithm and did the comparative static analysis, finally I developed a model of duopoly under uncertainty, considering the competition between the firms explicitly, using ROA, I calculated the two firm's values respectively when they take different roles-to be leader or follower, and then checked the possible equilibriums.