Application Of Real Option Method In Private Equity Fundinvestment Decision

In recent years,with the gradual maturity of the private equity fund industry,the rules of the industry system and the subtle links are constantly improving and tightening.For example,the private equity investment fund unlisted equity investment valuation guidelines(for trial implementation)have been issued for the private equity valuation.instructions.Driven by such policies,the institutional mechanisms of China's market economy have gradually matured,and domestic private equity investment has also developed rapidly.The development of private equity investment funds is in line with the capital market service entity economy,the multi-level strategic goal of the capital market system,which can further solve the problem of economic realism and optimize market resource allocation.Moreover,most of the private equity fund bids are for the initial development of the New Third Board,the Growth Enterprise Market,and the Science and Technology Innovation Edition.This is in line with the policy requirements of the state to vigorously foster small and small enterprises and cultivate entrepreneurial and innovative enterprises.In recent years,private equity investment funds have experienced a period of rapid volume growth.Today's competition is becoming more intense and development is becoming more saturated.Value evaluation is becoming more and more important in the process of private equity funds choosing investment targets.Based on the contents which include the operation process and investment mechanism of private equity investment,this paper analyzes the common valuation methods such as priceearnings ratio method,DCF discount method and option pricing method,which are usually adopted in investment practice.The real option method of option value is used to make private equity fund investment decisions.When investing in projects that are expected to receive sufficient benefits,the final return is not only the right to use the investment assets,but the investors also have the right to make a decision about the future investments.Private equity funds have different option values at different stages of the project,and the investment process itself is highly uncertain,especially for private equity investments with IPO and M&A as their main purposes.The real option method can well reflect the value brought by this part of uncertainty,what`s more,it would be able to reflect the flexibility of investment decision.This paper elaborates the basic concept,scope of application and parameter calculation of the BS model of real option method,and introduces the choice.Weight space theory,two-dimensional space-assisted decision making using net present value ratio and cumulative coefficient of variation.In the case of Fenike,the first step is to screen the proposed investment project in combination with the fundamental data and the business model analysis framework commonly used in private equity investment decision-making,which includes DuPont analysis,profitability,and cash flow quality analysis to ensure the quality of the investment target meets the basic requirements.Then,with the theory of the choice weight space,through the calculation of the parameters of the cumulative coefficient of variation and the net present value ratio,it is determined which of the six categories of the investment target belong to “immediate investment” and “temporary investment”,and finally the estimation of the BS model is calculated.The result of the value is optimized in the parameter measurement,and the volatility of different time segments is differently weighted.The beta value is also selected using the adjusted beta and the compound interest calculation of the risk-free rate.