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Study of Investment Evaluation of the Projects Based on the Trinomial Tree Model of Real Option

Author: ChenFeng
Tutor: BiXing
School: Tianjin University
Course: Management Science and Engineering
Keywords: Investment projects Real Options The trigeminal number model Decision Assessment
CLC: F830.59
Type: Master's thesis
Year: 2007
Downloads: 275
Quote: 0
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Abstract

Under the pressure of technological progress and globalization of market competition, the economic benefits of the investment projects of socio-economic development and national strength has a very important significance, decision evaluation of investment projects has also become widespread concern. Has been the traditional investment decision-making methods (such as: the net present value method, internal rate of return method, payback period method) is a major investment decision-making tool for policy makers. In a rapidly changing market economy, a growing number of economic phenomena can not explain and judge the calculated results with these traditional investment decision-making tool. These are some unavoidable weaknesses of the traditional investment decision-making tools, such as: traditional investment decision-making method requires predicting future cash flow forecast accuracy can not be guaranteed, easy to overlook flexible decision-makers manage resistance value. Another decision-making methods to compensate for these weaknesses - real options calculation method, you get more and more recognition and application. Option pricing theory as the discoveries of the 20th century, great finance theory, principles, methods, and conclusions can be widely used in the analysis and decision-making of the macro and micro-economic and management issues. Option pricing theory is applied to the field of investment decisions, it evolved into the theory of real options. It is one of the latest development of the theory of option pricing, not only greatly enriched the connotation of option theory, and provide a new analysis of the ideas and analysis methods for the investment decisions of businesses and individuals. The real options method is introduced into the decision-making evaluation of investment projects, analysis of the characteristics of real options in evaluation of investment decision and the application of real options framework is constructed. Techniques and stochastic analysis methods to extend binary tree pricing model, the magnitude of the rise and fall of the underlying assets can not equal the real options ternary tree pricing model, and the ternary tree pricing model proved theoretically estimated by using the infinitesimal order the Black-Scholes option pricing model approximation. Article with case, real option pricing model and its application in the decision-making evaluation of investment projects carried out in-depth analysis and argumentation, regardless of the the trigeminal number of pricing models are superior to the binary tree pricing model on the precision or accuracy, but also real options method can make up for some shortcomings in the traditional decision-making evaluation method using real options pricing methods to evaluate investment projects can be more scientific decision-making.

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