Research On Fuzzy Real Option Pricing Model Application In EPC Project Evaluation

Recently, Engineering-Procurement-Construction(EPC) model is widely used in large engineering projects and becomes mainstream contracting model gradually. Due to its characteristics that giga-investments, long period, many uncertainty factors, the traditional investment decision-making evaluation method always ignore the option value which the project contains. The evaluation deviation is an important reason of the decision-making errors. Compared with traditional evaluation method, the real option method has certain advantages, but still did not take uncertainty factors into account. The fuzzy real option pricing model can make up for the deficiency of the traditional real option evaluation method. Under this background, applying the fuzzy real option pricing model to the EPC project evaluation has important theoretical and practical significance.Project evaluation is the core of investment decisions. To evaluate the EPC project value effectively, this article introduced fuzzy number to describe uncertainty and further dissertated the fuzzy real option pricing model that based on B-S option pricing model. At last, the adaptability of the proposed model was checked out by case study. Specifically speaking, the mainly contents of the research are as follows:(1) Systematically expounds the development situation of EPC management model and summarizes the basic theory system of real option pricing method in detail. On this basis, concludes the application restricts of traditional real option pricing method in practice. Furthermore, this paper also sketches out the development and application of the fuzzy theory.(2) Based on the Black-Scholes option pricing model, this article introduces trapezoidal fuzzy number to construct the fuzzy real option pricing model and analyzes its parameters setting. By analysis of real options characteristics in EPC project, sums up the procedure of project value appraisal that utilizes the fuzzy real option pricing model.(3) Take two EPC projects for example, paper deduces the steps of fuzzy real option pricing model application. The model's validity and suitability have been verified through the case study. At last, we propose the investment advice through sensitivity analysis.