A Study On Entrepreneurs Investment?Consumption And Hedging Under Uncertain Market Environment

Real investments activities play a fundamental role in the economy.Company managers often face decision-making problems such as whether to invest money and when to invest.There are many types of investment projects,such as R&D projects,real estate development projects and equipment investment,etc.,however investment does not bring immediate rewards.Therefore,it is more important to analyze and evaluate the value of the investment project.It is not enough to evaluate the value of project by simply forecasting and analyzing cash flow.Real investment typically has three important characteristics:it is irreversible,its future rewards are uncertain,and the investment time is to some extent flexible.So researchers regard the real investment as an "American call option".Therefore,in recent years,more and more researchers have devoted themselves to the applications of real option method in irreversible real investments.It is a more effective way to evaluate the future investment opportunities from the perspective of real option.However,their research focuses on the choice of investment time and don't care about how much investment or financing.That is,managers often execute the investment when significant uncertainty disappear and the project rewards are more clear.With the rapid development of the financial market,the financial market environment is becoming more and more complex,uncertain factors and frequent incidents.For example,since the outbreak of the global financial crisis on September 15,2008,including my own has adopted a loose monetary policy,leading to a high level of inflation.Nowadays,China's capital market is not perfect,the investment channels are single,so that investors will rarely choose assets to hedge inflation risk.On the other hand,with the deepening of economic globalization,transnational investment has become a common phenomenon.Therefore,investors must consider the impact of the fluctuations in exchange rate on their investment returns when conducting cross-border investments.Thus,this thesis applies real option method to the irreversible investment decision and studies the entrepreneur's investment,consumption and hedging problems before and after exercising the option under the inflation risk and fluctuations of exchange.The whole thesis consists of four chapters:The first chapter is the introduction,including three parts:describing the research background and significance;the related research results are briefly introduced;the content and structure of the full thesis are combed.In the second chapter,we study the entrepreneur's investment-consumption in the process of real investment under inflation risk.Firstly,through the introduction of price level to measure inflation,the real asset prices discounted by inflation are characterized by stochastic differential equations in terms of Ito formula.For a lump-sum investment payoff,we established the stochastic control model both before and after exercising the option and used dynamic programming methods to derive the corresponding HJB equation.We also derived the exact solutions of the optimal consumption and portfolio selection.Finally,the effect of the inflation parameters on the optimal consumption and portfolio is analyzed by numerical simulations.In the third chapter,we consider the exchange rate risk.For entrepreneurs of transnational real investment,we use standard dynamic programming and optimal stochastic analysis method to give the optimal consumption and investment strategy.And through the numerical simulation,the effect of the volatility of exchange rate on the optimal consumption and portfolio is analyzed.The last chapter summarizes the results and gives the inadequacies of full thesis,further looks forward to the future research plan.