Research On Several Models Of Investment Option Evaluation And Relative Simulation

The evaluation of investment projects is of extreme importance in modern capital investment decisions of firms. In general, because of the irreversibility, lots of uncertainty and delayed return, it is difficult to evaluate investment projects. Real options method is an extension of financial options theory to real assets. The investor who has the options has the right (but no obligation) to invest, which adds value to the project and decrease the risk. So using real options method to evaluate investment projects, the complicated option to invest can be simulated and valued reasonably.With the complex structures and characters of the process of investment, quantitative analysis of the valuation of the option to invest is more difficult than that of ordinary financial option pricing model. According to the existing valuation theories on financial assets, the easy derivative securities may have the simple computation model in theory, but valuation for most of the option to invest cannot be solved effectively, so the technique of numerical simulation has become a very important means of evaluating the option to invest. The numerical simulation method of this thesis includes three approaches: Monte Carlo simulation, binomial tree method and finite difference method. The three approaches are applied by respective examples.This thesis mainly researches two models. The first model uses real options approach to value investment strategies under regulation, and sets up an option-pricing model. The value of the project, whose path is simulated and analyzed numerically, follows a Mean-Reverting process. This part derives the option pricing formula by using the dynamic programming method. Solving the formula numerically and analyzing the numerical results, influences of regulation on investment are found out. The second model is about evaluating entry and exit investment strategies, in which output price follows a combination of a geometric Brownian motion and a jump process. The investment options in the idle and active states are evaluated respectively, the thresholds of entry and exit are obtained.