Research On Real Options Theory And Its Application In Investment Decision-making

Uncertainty is one of the main characteristics of investment decision-making in modern market economic system, and how to deal with uncertainty is a crucial point of the effect of investment decision-making. The traditional net present value(NPV ) method has severe weakness under uncertain environment, however , real options method can make up the shortcoming of the NPV method. Real options method can make quantitative research of all kinds of investment opportunity and operational flexibility by means of taking them as options, making a organic combination of the so-called strategetic minds and mathematic accuracy. Therefore, it can be regarded as a great improvement of the investment decision-making theory and methods .This article makes a systematic research on real options theory and method and its application, including the following several main aspects:Firstly, it makes a detailed discussion about the common theoretical basis of financial options and real options, including no-arbitrage equilibrium principle, risk-neutral definition, complete market and dynamic tracking.Secondly, it analyze three basic characteristic of investment decision-making in modern market economic system: irreversibility, uncertainty and flexibility, and from the angle of their mutual quantitative and qualitative interactions, it makes a comparison between the traditional NPV methods and real options methods and makes a summary of the general analytical methods of real options.Thirdly, it discusses the all elements in the application of real options such as the ^leakages in value of real assets, basis risk, and private risk, and furthermore, it attempts to put forth a normalized strategy of its application and construct a basic framework of its application.Fourthly, it applies real options theory to strategetic investment of enterprises and the buy-out of company, putting forth a value model for strategetic investment program and making a concrete analysis of its application to buy-out. Furthermore, it advocates that a flexible investment decision-making system should be setup according to real options theory in our country.