Pricing Of Real Options Under Uncertainty

Because traditional evaluation methods invalidate the investment choice under uncertainty, Mayers and Ross thought of real options to evaluate the value of the projects. Subsequent scholars constantly enrich and improve the set of real options price theory on this basis. Now, the real options method has already become an important tool in the fields of enterprises value evaluation, strategy investment management, investment decision, corporation merger and acquisition, New-high technology project and so on.Chapter I of this paper firstly analyses the traditional evaluation methods from the practical problems, then describes the background of real options. Finally, we systemic introduced the development of the real option.Chapter II of this article generally introduces the basic types of real options, the basic idea and principle of real options. In order to understand the concept better, real options compared with financial options from the nature of the concept and the basic input variables.In Chapter III, we first introduce the basic mathematics knowledge related to the model of real options, then giving two simple pricing models, B-S pricing model and Binomial Tree model. On this basis, we give an analysis of Geske compound option pricing model and an irreversible investment model. After that, we solve a numerical example using the real option method.Chapter IV studies the pricing model of the causal compound real options with value leakage of real capitals under the hypothesis that the change of risk-free interest rate obeys to Ornstein-Uhlenbeck stochastic process. At last, the model is to have appraised the value of an investment project with causal compound real options with multi-variables and multi-uncertainties.Chapter V analyzes the applications of real options to venture capital assessment. 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 options, a complex option has been build under the hypothesis that the change of risk-free interest rate obeys to Cox stochastic process. At last, using the Mote-Carlo algorithm to simulating the random diffusion procedure of capital value, we get the value of the complex options in venture capital.