Real Options Theory And Its Application On The Investment Decision Of Venture Capital

The development of venture investment is quite important to our country now, and how to control risk and to evaluate the projects correctly is becoming a hot subject. Traditional evaluation methods are not effective in the evaluation of venture investment. The purpose of this article is to research the application of real options approach (ROA) to valuing venture capital projects, because ROA is a better approach for valuing those projects, which are characterized by high uncertainty, than traditional valuation approaches, such as the approach of NPV.This article outspreads in both theoretical aspect and method aspect. Based on my reference to large number of foreign and domestic literatures and combined with the practical problems of investment, this article made thorough analysis and study about the real options theoretic method and its application procedure. This dissertation's main content includes:From the theoretic aspect, firstly analyzing the traditional decision methods and summarizing their advantages and shortcomings, by the way pointing out the theoretical and technical advantages of real option on analyzing the investment opportunities and evaluating the value of management flexibility. Secondly, introducing the relevant theories and core ideas of real options in the round, systematically introducing the basic meaning, innate characters, and types of real options. Through the contrast study with financial options, we will deduce the pricing model of real options, and set forth the inside logic that financial options expand into real options.From the application methods, synthetically analyzing the real options exist in the different stage of the venture investment projects. Then applying the framework to a detailed case of venture capital project and building a multi-staged compound real option model. The process of calculating the value of the option is explained in detail. With this analysis frame, we can discuss investment projects by real option method that could completely scoop out the value of the investment project. This frame will provide the investment manager an effective tool and technique to entirely evaluate the value of projects, which has significant theoretical meanings and actual application value for the business enterprise to correctly implement their investment projects.