Research On The Application Of Real Option Approach Into The Investment Decision Of Petroleum Developing Project In The Northern Shaan'xi Province

In the recent years the theoretic researches upon real option approach have made great progress, but majorities of these researches have been limited to the theoretic investigation, and they have not applied the real option approach into investment practice. Therefore, this paper applying the real option approach into the investment practice of the northern Shaanxi province's petroleum development project, not only produces great practical value for scientifically evaluating the project of this area and making the rational investment decisions.On the basis of detailedly summarizing the research literatures about the real option approach, this paper, firstly, analyzes the uncertainty of petroleum development, and summarizes the characteristic of the northern Shaanxi province's petroleum development project by combining its geological condition, geographical environment and cultural environment, and respectively classifies the project into the promising development project and the occasion development project, more stages development project and related development project, and monopolized development project and sharing development project, etc., from such three aspects as development time, project correlation and project competition, revealing the thinking of the real options contained by the project of this area.And then, based the classification above, this paper makes the emphasis upon the single real option involved by the northern Shaanxi province's petroleum development project, including waiting option, scale option, stopping-continuing option and abandoning option, and applies the continuous-time B-S Equation to price theses options; lastly, this paper emphasizes upon the compound correlation between the real options contained by the northern Shaanxi province'spetroleum development project, applies compound- two- trees model for the discrete-time to price the compound real option, and makes sensitive analysis of five factors (volatility, strike price, riskless interest rate, pay loss rate and strike) upon the compound real option value. By applying the real option model to price the single real option and compound real option, it is revealed that the value of real options is the important composition and can not be neglected.