The Application Of Real Options In The Project Pricing Of Venture Capital

In the era of rapid development of science and technology, venture capital action is becoming more and more popular. Compared with many western developed countries, venture capital in China just carries out. Many theories on its macro-operating mechanism have been developed, while few has concerned appraisal method. The lagging of appraisal method has hindered the development of venture capital in China. Therefore it is of great significance to find an appropriate investment appraisal method under the current economic situation of China. To complement venture capital appraisal method, this thesis introduces real options and option games theory to the investment appraisal of venture capital. Thus venture capital individuals and companies could evaluate the value of their projects precisely, and the efficiency of venture capital will be improved.The thesis is composed of five chapters. The first chapter introduces the background and method of the research and reviews related documents. The second chapter is the summary about venture capital. Under the discussion on the traditional evaluation methods, real options pricing method and the comparison between them, the third chapter analyzes the characteristics of real options pricing in venture capital, and gives a brief introduction and real examples for the one-stage single pricing, one-stage compound pricing, and multi-stage compound pricing on which some restraints are mentioned. The fourth chapter uses the theory of option games model developed by Dias & Teixeira and conducts an empirical study to test the application of the method. The last chapter sums up the thesis'innovations and limitations, and suggests some trends in the compound option games model. The whole thesis concludes that we should not only take net present value and operating flexibility into consideration, but also the value which embodies the strategic flexibility in the whole competitive market outside enterprises. The complement of compound option games theory and model are the aspects of the later research.The originalities of this thesis are as follows: firstly it analyses the influence of risk-free interest rate and volatility on real options value; secondly it uses Dias & Teixeira Model to conduct an empirical study on a real venture capital project in Xiamen. However, the empirical study is restricted to the single option games model. The rationality of hypotheses in the model and the accuracy of parameter estimation are still to be improved.