Research On The Pricing Of Compound Real Options Under Incomplete Information

Owing to the shortages of DCF, Mayers(1977)and Ross(1978) thought of real options to evaluating the projects. And the following scholars made improvements on the basis. However, when the model is used, the changing probability of the assets'value and the future cash flow is considered as constants. It doesn't agree with the reality.In every investing year, the changing probability of the assets'value is not fixed under different information, and the value of real options is different when the probability changes. The higher moving up probability means that the value of assets will move up and the real options will be excised. Many uncertain factors will also influence the future cash flow. The paper aims at the study of compound real options under incomplete information. Based on former analyses and research, the paper defines the incomplete information , sets up the pricing model of compound real options under incomplete information, and applies the new model into a case. Besides, stochastic dynamic programming is successfully used on the pricing of casual compound real options.The innovation points of paper are: the pricing model of compound real options under incomplete information the incomplete information is set up; stochastic dynamic programming is successfully used on the pricing of casual compound real options.