A Study For Investment Decision-making Approach Based On Real Option

Starting from introducing traditional investment decision-making method, this articlefirst introduced the traditional investment decision-making method and its limitations; thisleads the real option application.In the real options method first introduced the basic theory of real options, and thenintroduces the real options Classification and application characteristics, from a qualitativeperspective of the real options approach. This paper emphasizes real options in the investmentdecision-making applications can not only enhance the flexibility and agility managers, butalso a method for investment decisions fresh thinking. In the qualitative analysis based on realoptions approach, combining the characteristics between different investment projects, theproject features and real option value structure were compared, the introduction of a singlereal option pricing Black-Scholes option pricing model and the binary compound real modelgive quantitative analysis of real options approach. From the Black-Scholes pricing model tostart introduces the basic ideas, emphasizing the binomial model is more suitable for realoptions approach.Since then, the real options approach with the current practice of most of the NPVmethod were compared and analyzed, studied the lack of the NPV method and the advantageof real options approach pointed out the real options approach and NPV differences andrelations. The uncertainty is large, multi-stage investment in strategic, real options approachcan better calculate the value of the project.This article selection Guangxi Guitang (Group) Co., Ltd.guigang Integrated technologyprojects and China Mobile Limited4G project two case to make empirical analysis,throughwhich two cases one can intuitively understand the two kinds of real option pricing methodsfor specific applications, and second, you can really discover the value of real options. In thecase of Guigang,the NPV has powerless to this complex investment decisions, so we usebinary tree model to analyze the project and we use ARIMA model to predict the price ofsugar, finally had been using binary tree calculated value of the project, through thisexample it is clear that the project contains the value of real options, real options can be seenat the same time the dynamic management of the project, depending on the internal andexternal environment, decision-making, is a more scientific approach to decision making. InChina Mobile4G project Black-Scholes model was used, the results show that this strategic investment as4G, even if the NPV is negative, but because of its inherent real option valueand therefore is still worth the investment. Two examples are demonstrated using real optionsapproach process, found hidden in the rights and value of the project, explains the advantagesof real options.Finally, Full Summary and Outlook, presented the application of real options approachprospects and recommendations, and pointed out the inadequacies of this study.