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

The coal industry plays an important role in China’s national economy. Comparedwith other industry, it has some specific characteristics such as a long life cycle, moreinvestment and great risk. Additionally, the traditional project investment methods ofcoal industry are lack of considering the management of selectivity and the flexibility.So they underestimate the value of the project. Then it is urgent to use a method to helpthe investors to make a more effective, objective and scientific decision. This article isbased on the idea of the traditional project investment methods, introducing theevaluation methodology of the real options to provide investors a new thinking and anobjective perspective. It established a model which is fit the evaluation of the coalindustry and analyzed the parameters which is influenced the model. And completed theempirical research on Yima Coal Industry——Xin Yi Mining. The research resultsobtained:First，combined with the own characteristics of coal industry, I analyzed theshortcomings of the traditional project investment methods and then introduced theevaluation methodology of real options. Reveals the coal industry project investmentdecision-making of real options implied in thoughts.Second, this paper analyzes characteristic coal mining project, as well as theindefinite influence factors, these factors can be summarized as political, economic,technical, and then comparison of the differences and similarities between traditionalevaluation and real option evaluation method, conclude that the traditional limitations ofassessment method in coal mining project, thus, introduces the real options appraisalmethod, has promulgated the real options thought which in the coal mining projectconceals, builds the foundation for the real options model establishment.Finally, this paper focuses on Markov property Wiener processes and Ito theorems,which are used to build the real options model, and establish Real Option PricingModel--Expansion of option pricing models, option-pricing model, and abandon theoption pricing model--in the coal mining project investment decisions under theuncertain conditions. Throughout the production phase of the project developmentphase, and fully reflects the management flexibility of the investment decision applications in coal mining project. Finally, these three models are used in Empiricalanalysis of specific investment projects inYima Coal Industry Group-Xinyi mine.