The Research On Application Of Real Options Theory

The traditional investment decision analysis methods, such as discounted cashflow method, made tremendous contributions to enterprise project investmentdecisions, provides a better analysis tools and approaches for enterprise investmentdecision in the socio-economic development. However, this approach todecision-making as a static, one-time process, not fully reflect the flexibility ofinvestment decision. So the traditional investment decision analysis method forassessing the stable expected cash flows of the project is effective. Real option ideasfully consider the decision-making process of investment flexibility.It evaluates theoverall value of investment projects with a new perspective. It is the idea of usingfinancial options to evaluate the physical assets, enable investors’ flexiblemanagement to quantify the value, increase the feasibility of the application of realoptions approach.With changes in the external environment, a variety of new industries emerging,the current kind of investment projects is continually updated, the uncertainty thatenterprises faced in investment is also growing. Especially at a higher risk anduncertainty for investment decisions risk investment projects, natural resourcedevelopment projects and corporate mergers and acquisitions, real options methodcan evaluate the real value of investment projects more accurately, so thatdecision-makers can grasp investment decisions dynamically and objectively, toavoid the risk of loss as much as possible, to get the maximum return on investment.This paper come out of real options theory though explain the conceptof financial options by a method in simple terms. Firstly, introduce the concept ofoptions and variety, the theoretical basis of option pricing models, as well as theprojected course of three classic option pricing model. Secondly, analyze severalfactors and variables to affect option prices though the Black-Scholes model, andchanges in how these variables affect the option price trends.And then introduce the concept and characteristics of real options, as well as the type of real options.This paper uses a lot of space as a case analysis, and reach conclusion that realoptions theory is a more accurate estimate method of the value of the investmentproject conclusion compared to traditional discounted cash flow method.Thisarticleselect the case that CNOOC acquire Nixon in Canada, first analyzes thecharacteristics of real options in this case, and then through specific estimates andfigures to illustrate the use of the real options approach can reflect Nixon’s true valueexactly.Finally, the paper points out the application of Chinese enterprises shouldpay attention to the problem of real options put forward concrete proposals, andmake asummary.