Study On Application Of Real Option Theory To Venture Capital Assessment

The option pricing theory is a traditional field in modem finance, and the evaluation of venture capital is studied widely in economics and finance filed. This paper begins with such two problems, and by using the theory of real option to develop the options containing in venture capital, therefore we can make a improvement of the way to evaluate in venture capital.In this paper, we depend on the charters of venture capital and the pricing of real options, begin from the different types of real options, study the reasons in venture theory in real options, and the hidden type of options in venture capital process.The main result is combining the evaluating process in venture capital and real options theory. According to the risk-neutral theory and characters of individual real option, from the mutual period of venture capital, from the maturity of venture capital, a complex option has been build to take the later options as the cash of the former. Then by multi-stage complex options without analytic solution and the character of path dependent, using the Mote-Carlo algorithm to simulating the random diffusion procedure of capital value, after 1140 times stimulating we get the value of the complex options in venture capital.We take the example of a biology-medicine machine, by using the Monte-Carlo algorithm to evaluate the real options. We can get from the method of real option can that the option value of venture capital is positive. Compare with the negative value get from method of NPV, the investments is valuable, and also proof that the real option work better.This paper can improve the method of venture capital, and complete the process in process in venture capital, then make a progress in efficiency of process in venture capita.