Pricing And Application Of Real Options Under Uncertainty

Because of the irreversibility, uncertainty and delay of the investment projects, the traditional capital budgeting methods represented by net present value method is not apt to the growth of the strategic investment decision.Real options approach as a decision-making tool, considering the flexible management strategy value, attracts more and more scientific and practical attention.Pricing reasonablely and accurately is the key to the application of real option, so this paper focuses on the pricing and application of real options research.The main work of this paper is to be introduced next.A mathematical model is used to demonstrate that the traditional capital budgeting method offen underestimate the value of investment project, which may result in investment decision-making errors,while real options can evaluate effectively. Secondly, the paper take O-U process and exponential O-U process as real options underlying assets price movement, analysis deeply and draw important conclusions.Thirdly, with a good fundation of the important conclusion, we use the Mote-Carlo simulation method to make a pricing and application research about an aluminum mining project.