The Study Of The Use Of Real Option In Project Investment Decision

Using the real option in investment decision is a new subject of financial management. Many scholars of China and foreign countries studied it deeply, but much of the study are the discussions of the model and the theory of application, and that is because the complexity of the real option and the diversity of the decision, the application of the real option involves many problems in practice.Based on the study before, using for the reference of theory and practice both China and aboard, this paper brings forward the practical process of real option decision creatively. In the principal part of this paper ,first the author introduces the study both China and aboard, then inducting the real option though the financial option, contrasting the two similarity as well as respective characteristics, thus draws out the differences between financial option and real option and makes the simple introduction to the price model of real option. Second the author proposes the general step of using real option on policy-making, and gives the specify to each step, and also gives an example to make the detailed computation, especially the calculation of undulation rate which is the primary factor of real option value, and makes the sensitive analysis of mainly factors .Finally, author points out that none of the methods was always the best, but also considering policy-maker's motive and the market environment. When we meet the requirement we utilizes real option to carry on the investment decision-making, when we do not meet the requirement, the key is to see the thought clearly behind them, to learn the methods of analyzing and solving problems. Real option theory has universal meaning.This article proposed the general step of using real option and several computational methods of undulation rate characteristically, and gives an example of the detailed computation and the sensitive analysis. The subject and the study of the dissertation have great reality meaning.