Fuzzy Trigeminal Tree Fricing Model Of Real Options And Its Application

According to the common features in the venture capital investment—high input, highyield and high risk, people always invest by stages which is becoming more and moreimportant in economic activities with the more complicated market environment. So theevaluation of the investment is getting more people's attention. And the traditional evaluationmethod such as comparison method, proportion method, maturity method, the internal rate ofreturn method, scene analysis method, decision trees method and the net present value methodand so on, not fully considering the uncertainty and the Characteristics of stage of theinvestments of the project, can't estimate the value of the project rationally. So we come upwith the fuzzy real options method.This paper firstly introduces the venture investment and real option theory briefly. Nextit construct the classic trigeminal tree pricing method of American options, whose underlyingasset the executed price are given beforehand, and analysis the real options existing in theproject and their interactions, then use the method to calculate the value of the growth optionscombined with the choice the investment scale.Because of the uncertainty of the external environment, the NPV(net present value), thecost of the project and the volatility of the NPV are not sure, so we can't obtain the accuratevalue. Then the traditional trigeminal tree pricing method is limited in the application ofcapital investment of real life. So we improve the model with the fuzzy mathematic theory.We use the non-liner triangle fuzzy numbers to process the NPV and the cost of the project,so we can obtain their mean value and the variance which replace the determinate ones. Thenwe can construct the fuzzy trigeminal tree pricing model of real options according to the fiveimportant parameters obtained before. Next we use it to calculate the value of the growthoptions above-mentioned, and get the total value of the project at the beginning. At last, weanalyse a specific case, and verify that the fuzzy trigeminal tree pricing method of real optionsis suitable in the venture capital investment by stages.