Operating Infrastructure Project Investment Analysis Based On Real Option Theories

Operational infrastructure is an important part of China's economic and social development and it becomes the guarantee to the long-term development of community coordination. With the rapid economic development, China has further expanded its needs for infrastructure. However, the government's revenue is limited, so infrastructure development cannot be entirely relied on government investments. Based on the reality, the government began to relax the constraints on operational infrastructure and allows private capital with good quality to participate in the conquest of monopoly infrastructure. In the course of this attempt, how to determine the value of infrastructure projects is the most concern of both parties and is the issue urge for solution in this study field. How to attract private capital and how to carry out efficient investment decisions to make capital investment to achieve the best results? These require people to provide a practical analysis of the feasibility study. In general, the operating infrastructure projects are with such characters as irreversible, uncertainty and timing. The basic assumptions and the process of project construction and operation of traditional net present value method the do not match the actual situation, which ignore these basic features in these investment decision-makings. By and large, we need to introduce real option pricing methods into the investment decisions of commercial infrastructure projects.As real options theory has been widely used in corporate investment decisions and has also been applied in the infrastructure investment decisions. This paper sets the status of private capital investment as a starting point in order to lead to necessaries of investment decisions by using real options. On this basis, the article further analyzes the application of real options in infrastructure projects. Under the theoretical framework B-S model, the paper focuses on the analyzes the growth option in both single growth option pricing model and serial growth option pricing model, and also study the various parameters in the model with depth. The paper analyzes the difference between real options approach and the traditional methods of investment decision making by real cases. What is more, it further shows the analysis that great differences exist among the sensitivities of the option value to different parameters. Through the application of real options theory in commercial infrastructure projects, the paper also points out the shortcomings of this approach, which provides the solution of game analysis and shows further research prospects.