The Application Of Real Options Theory In Mobile Payment Industry Investment Decision

Mobile communication and Internet becomes the world’s fastest growing market,which is also largest and most attractive market in recent decades. With IOS, Android,Windows Phone OS smart devices booming, mobile e-Business has been created as a newprofit growth field in mobile internet segment. It is obvious that we need to get through―the last one kilometer‖in mobile internet highway–Mobile Payment. However, there area lot of uncertain factors in the development of mobile payment because of disunitytechnology standard and complex business model. Traditional investment decision methodis easy to neglect opportunity value in mobile payment project. Real Option theory, anapplication of financial option theory, offers new approach and techniques, and seesincreasing practical value.This paper summarizes the Real Option theory systematically in basic concepts,application conditions and its effects in many industries, as well as in depth research of thetraditional investment valuation method. It puts forward to using Real Option analysismethond in mobile payment industry investment valuation, focusing on the constructionprocess of evaluation model and the problem solving process from variable parametersacquisition to investment results interpretation.It illustrates the possible types of Real Option in mobile payment investment projectsand the feasibility of Real Option theory application into the evaluation of mobile paymentprojects. The specific steps for model construction and result calculation should be:recognition of the type of real option based on the mobile payment project, selection andbuild-up the appropriate option pricing model, parameters data input the model andcalculation the option value and final total value. In particular, this paper introduces theMonte Carlo Simulation method to estimate the volatility of option pricing model.The final part of this paper is the Empirical Research–UMPAY Company ECARDmobile payment project. It utilizes the formal Real Option method and Black-Scholes pricing model to valuate ECARD project. The results show that Real Option method inmobile payment investment evaluation is effective and feasible, and this method can makeup the deficiency of NPV method in mobile payment industry significant uncertainty.