Application Of Option Pricing Theory To Decision-making On Investment

This thesis mainly studies the evaluation and investment decision-making to project by option pricing methods. Basing on the evaluation of project, the basic tools of replicated pricing, dynamic programming approach and martingale measure, this paper focus on the issues of optima investment decision-making regarding the investment opportunity as call option.Compare with the finance option, the investment opportunity regarded as call option is more complex. In second chapter, we analyze the price movement of the underlying assets from the arrival of information, the market efficiency and the market mechanism which decide the price. After studies mixed jump-diffuse process and mean-reversion process, we obtain the evaluation of the investment opportunity while evaluation of project movement is mixed jump-diffuse process by stochastic dynamic programming and obtain the evaluation of project while the target asset movement is exponential O-U process by martingale measure.M&A is an important method of capital management as well as a way to make enterprise grow rapidly. The evaluation of M&A is critical in the decision-making of M&A. In the third chapter of this paper, on the basis of full consideration of M&A features, the option theory is, introduced to improve traditional DCF (discount cash flow) method, and the pricing model for objective enterprise in M&A is established.Marginal income of the enterprise likely to descend while output scale grown because it was impacted by relation between supply and demand and other factors. So the scale of investment is not best as the enterprise can do. It indicates not only the time but also the scale of investment should be chosen by enterprise. The fourth chapter hypotheses demand function: D(Q) = Q^-ε, 0＜ε＜1, and production function: L = Q^?,0＜θ＜1. Then we obtain the optima industrial scale and investment scale.