The Application Of Real Options Thinking In Strategic Investment Decisions

The Real Option emphasizes to analyze the influence of newopportunities brought by a program on the enterprise. These opportunitieswere induced by investing a new program, so-called strategic options. Theentrepreneurs increasingly consider the value of Strategic Options and how toadopt real option to estimate it.First, the thesis analyses entirely the technique of the traditionalinvestment decision-making, and gives some brief comments about theadvantages and disadvantages of each method. It indicates that the reason whythe traditional methods couldn't adapt itself to the uncertain environment.According to the advantage of option theory, the author suggests to bring itinto strategy investment decision-making, which is the real-option.Then, the origin, the meaning and the essence of the real-option aresystematically introduced;the differences between the option and thereal-option are compared;and the unique advantages of the real-option in thestrategy investment and uncertain world are emphasized. All above mademanagers believe that they need to master the significant idea about thereal-option.But the complexity of the pricing model of the real-option became thebottle-neck in the real –option application. And the applicability of classicalBlack-Scholes model need further research. In that case, the thesis tries tointegrate the Discounted Cash Flow (DCF) and the idea of the real-option, forDCF is a widespread used method. In that way, more managers will be willingto used real-option idea in the strategy decision-making.