The Analysis Of Investment Strategies On Infrastructure BOT Project In The Option Game Framework

Infrastructure is very important for economic development and social progress. During recent years, China has increased its investment in infrastructure construction. It has eased the contradiction between the lack of government funds and public resources needs by BOT financing mode. But Infrastructures tend to need a large amount of investment, long construction period and big investment risk. Therefore research on investment strategies of infrastructure BOT project is of great practical significance.This dissertation discusses the flaw of traditional investment decision-making method which based on NPV, and points out that the option game theory can solve the uncertainty of investment projects and competition issues of investment opportunities. Combined with the specific circumstances of infrastructure, this paper analyzes the characteristics of real option, and points out that there are options to defer and expand in infrastructure BOT projects. At the same time, the binomial model's parameters are discussed in details. Secondly, this paper also analyzes the features of game between government and the project company on concession. On this basis, take the concession period as a government decision variable and the construction cost the project company as a decision variable and adopt game option method to establish a decision-making model about concession period and construction costs. At last this paper gives an example to confirm the feasibility of the model and shows that the project company has the option to expand in the first phase of the project construction. And thus the project company will not reduce construction investment in order to achieve its strategic objectives even the concession period is shortened. It has solved the problem of decisions on the concession period and construction costs of the government and the project company.