Real Options In Investment Analysis

The argument of this paper is to clarify the defect of traditional investment valuation methods, especially NPV method, and give a systematic introduction of the real option method. And explain how to manage project investment and strategic investment with real option method.Options present the right to buy or sell a financial value, without the obligation to do so. The owner of the option can exercise the option if he wants. The theory of real option is an application of financial option in investment decision. It is one of the most recently developed in the field. Real options are based on the same principals as financial options. There will be a series of opportunities in the life cycle of a project, the investors have the right to decide whether to expand, shrink or stop this project.In chapter one, the author firstly explains the concept and how to apply theory to practice of real option. In chapter two, the author explains the application of real option in project investment. And in chapter three, explains in strategic investment.From theory to application, from project to strategic, this paper has clearly structure. There are also many cases, which help the readers grasp the idea of the theory.This paper has many new ideas, especially in the analysis framework of strategic investment. The author designs several new methods about it. This paper provides a brand-new theory and application framework for strategic management in the uncertain environment, which has theoretical significance and practical value to development of enterprise.