Research Of Coal Project Investment Decision-making Based On Real Option

The coal is the important and non-renewable resource. With the shortage of the international coal resource, the decision-maker gives more and more attention on the analysis and research of the methods of coal project investment decision-making. Then it becomes urgent for the decision-maker how to evaluate the coal project investment decisions with a scientific and efficient method.The traditional methods of coal project investment decision (DCF) itself has limitations, mainly in the neglect of investment in coal projects and the uncertainty caused by the value of dynamic flexibility. Therefore, there is some major flaw in the practical application, it often underestimates the true value, which in turn inevitably leads to wrong decisions. Under this idea, this paper introduces the real option theory into the coal project investment decisions, as a more reasonable approach, which breaks through the limitations of the traditional investment decision methods, and solves difficult problem of decision-making impersonally in the investment environment that includes a great deal of uncertain elements.Firstly, the paper analyzes the real option characteristics,types,the influencing factors of real option value and pricing methods of real option when coal project investment decisions are made under uncertainty, proposes that the real option theory can revise the traditional investment decision method and then builds an application framework of coal project investment evaluation based on the real option. After that, considering the real option characteristic of coal project investment, the real option evaluation model of coal project investment decisions is established used the Black-Scholes real option theory. Finally, it studys a case of coal project investment with the real option method of coal project investment, proves that real option method is more effective evaluation of the value of the coal project than the traditional net present value method.To analyze the case of coal project investment, it is proved that the real option method is more available and maneuverable than the traditional method of coal project investment decision. As a useful attempt to evaluate coal project investment, it is significant to apply the real option theory to study coal project investment decision-making in China.