The Application Of Real Option Pricing Method In Leveraged Buy-out

First and foremost, this thesis introduces basic concept of merger andacquisition (M&A) and its importance to business development. The thesisalso describes recent development of China M&A market. Leveraged buy-out(LBO), the highest financing leverage M&A method along with the highestrisk, and its financing model are introduced in the article to show thesignificance of valuation in M&A business.Second, the thesis explains the concept of Black-Scholes Model and itsapplication in valuation as real option pricing method. The comparison withother valuation methods is also conducted in the article. Furthermore, theclassical sensitivity analysis of Black-Scholes Model to stock option pricingis used for real option pricing method. It analyzes key inputs which canimpact result of valuation, such as debt structure (Theta，θ), exchange rate change (Rho，ρ), business characters (Vega，ν) and target company status(Delta，Δ and Gamma，Γ).Last but not least, the thesis applies the pricing method to real cases, suchas Dell LBO case and China A-share market simulation, to checks itsefficiency, to show its effect on optimize financing structure in LBO and toimprove return on investment after LBO.