The Application Of Real Option Method In Multi-stage R & D Project Investment Decision

R & D(Research and Development) is important in the development of companies, so it is raised to the height of strategy in many business enterprises. It is important to evaluate the investment of R&D.This paper introduces multi-stage real option method and exchange compound option thinking to R&D project. In this paper, traditional investment decision-making methods are studied, firstly. Then it reaches the conclusion that traditional investment decision-making methods can't apply to R&D project, and forwarding real option method is tested to be the best method for R&D investment. Based on real option theory, the paper advances real option analysis framework and model of R&D investment. Take company A hybrid vehicle R&D project for example, this paper measures the option value by use of binomial pricing model and adjusted Margrabe exchange option model. Because of the failure of exchange option in the project valuation, by using of Carr exchange compound option the project is revalued, and getting the true value of R&D projects under Real option method.The application of real option method in company A hybrid vehicle R&D project resolves the problem which can't be settled by traditional ways and offsets the flaws of traditional discounted cash flow methods. This paper has theoretical significance and practical value to solving the current problem of low R&D investment caused by lack of quantifying methods in our county.