| Educational Investment is one of the most important form of human cap-ital investment. Recently, there was a difficulty of job-searching for college students and a shortage of skilled workers in China’s labor market, which re-flects that individual investors put emphasis on returns yet ignore risks as making education decisions. With the help of real options theory tools, this article mainly explores and analyzes the problem of education choice in a dy-namic stochastic model from two angles, which are the model of educational investment option to defer and the optimal stopping model of educational investment. In the former, the paper extends the model’s assumption from classical geometric Brownian motion to a more general form of jump-diffusion process.The issue divides into six parts. The first chapter mainly introduces the background and purpose of this research, reviews of literatures, research route and frameworks of the issue and innovations. The second chapter states the characteristics of educational investment and traditional decision-making methods in order to highlights the advantage of real option approach and goes on with the ideas of real option modeling. Chapter3,4and5establish the basic model of educational investment option to defer, models under jump processes and the optimal stopping model respectively. The sixth chapter summaries.Based on real option theory, the article examines the effect of returns and risks on individual education choices in a theoretical framework and draw conclusions as follow:First of all, it is the dynamic programming that we use to build and solve the basic defer option model. The paper finds out that the threshold and the option value decline as return goes up, and increase as risk rises. Secondly, putting jump processes into the basic model allows a discovery that the attendance of jump processes promotes the threshold and the option value. It shows that the randomness of relative jump amplitude magnifies the’option value multiple’as well. Thirdly, under the framework of optimal investment and consumption theory, the article builds the optimal stopping model and reaches a conclusion that the threshold Y*will tend to increase when the return to education g or the volatility a rises. A way combined numerical simulation and empirical test will support this conclusion. According to the study, both the return to education or the volatility have influence on decision making and executing. That’s why it is necessary for individual investors to take both of them seriously so as to avoid blind investment. By analyzing, we put forward reasonable suggestions from three aspects which are government, college and individual.Individual educational investment decision-making as well as real option are both research area faced with opportunities and challenges:on one hand, domestic cross-field research has just begun:on the other hand, researching is helpful to explain and resolve the problems lying in the individual educa-tion choice-making thereby leads to wise investments. Thus this article has theoretical and empirical significance. |
