Research Of Project Decision-Making Based On Term Structure Model Of Interest Rates

Net present value analysis accounts an important position in project decision-making problems. It has been widely used in economic, management and other fields. The rate used to discount future cash flows to the present value is a key variable of this process, which directly impacts on the accuracy and reliability of the decision-making results, and how to obtain the more effective discount rate which is suitable for projects assessment and financial management is a very significant research field.Based on previous research results, the paper uses interest rates term structure model to determine the discount rate, and amends the calculation formula of net present value, thereby improving the application of net present value calculation formulas during the solving process of breakeven analysis and real option analysis, changing the static analysis into dynamic analysis. At the same time, this paper applies the above results to the field of project investment decision-making. The main work and innovative results are as follows:(1) For the common pitfalls of static discount rates used in the net present value calculation formula, this paper giving full play to the superiority of interest rates term structure models in fitting and estimating the randomness of rates change introduces interest rates term structure models, which can amend the calculation formula of net present value and change the static analysis into dynamic analysis, in order to make the net present value analysis more reasonable and effective to reflect the risk characteristics of the project cash flow and more in line with reality.(2) Traditional breakeven analysis is a static analysis, which makes profit to be zero as the break-even point, without considering the time value of capital. Dynamic breakeven analysis considers the time value of capital by making net present value to be zero as the break-even point. This paper will make the dynamic breakeven analysis more practical by using the linear programming interest rate term structure model to determine the dynamic discount rate and verify the effectiveness of the method with appropriate examples.(3) In many cases real option analysis is limited to B-S model. Since real option analysis is the expansion of NPV method to some extent, this paper introduces interest rates term structure models into the real option, uses SV interest rates term structure models optimized by genetic algorithm to amend the real option pricing formula based on the traditional B-S model, so that to improve the application of NPV formula in the real option analysis, which will make the evaluation results more believable.The paper applies the theoretical innovation to the investment decision of clean development mechanism (CDM) projects, so as to make the projects assessment more in line with the actual situation.