Optimize Study Of Trinomial Tree Model In Mining Investment Decision

The characteristics of mining investment project is complex, such as large amount,long operation time, irreversibility of investment, etc, and these potential uncertainfactors play a pivotal role in The option value of mining. However, decision makersoften ignore these potential uncertainty factors in previous studies, and they always usethe past experience or some traditional methods to evaluate the value. These defectivedecision concepts make investment more blind and random. Therefore, how toobjectively evaluate the option value and make a scientific and reasonable decision hasbecome the key of research.The project of mining investment could be regarded as a relayed call option,the oreprice fluctuations will not only cause the value of boundary grade,but also impact on thevalue of ore reserves,mining service life and other factors. the traditional net presentvalue as an popular method for our decision.however,aiming at the defects of thismethod,we can found this method ignores the effect of dynamic information forinvestment decision.this inaccurate assessment would lead to the wrong decision andbad investment behaviors,this part is regarded as real option.Due to the defects of thetraditional net present value method,this paper discussed the feasibility of improving thetraditional net present value method by using the trinomial tree model.Based on thecomprehensive and objective analysis of the cash flow,such as exploration,rawmaterial,ore dressing,management cost,etc.the net present value model for mininginvestment decision was established.This model used the real option theory to achieveoptimal improvement.the process consists of three steps,"price tree—net present valuetree—option tree"; In order to provide correct orientation on investment decisions forour decision maker, this study applicate the theory of the“hurdle price”in optimalinvestment decision.This way based on the actual data to simulate investmentdecision,in order to provide an objective decision support. Research results show that,the new improved net present value method can be morecomprehensive and reasonable applied in potential option value for our mininginvestment decision. The influence of price fluctuation on the cut-off grade,mine servicelife is quantified to enhance the accuracy for mining investment by the optiontheory.this is a good way for our decision,and the method has good theoretical andpractical value.