The Study Of Company Managers’ Investment And Financing Decisions In The Jump-diffusion Model

The ownership and management right of modern corporations have beenseparated, as the joint-stock companies appeared. When the managers obtain therights delegated by the owners, they gain the decision of capital structure as well.Driven by the profit and other factors, they’ll select the most appropriate way ofinvestment while organizing business activities or making investment decisions.Within this context, the investment evaluation method on the Real Option wasintroduced into the investment or financing decision. The paper is about this kind ofdecision based on the model of Geometrical Brown Motion and Simple JumpDiffusion.Firstly, we need to obtain the value of company only relying on EquityFinancing and Debt Financing.Second, we should estimate the investment optionvalue relying on the managers’ different purposes(on behalf of shareholder benefit,creditor’s interest and self interest).Finally, through the comparative analysis on thedata, we make a conclusion that managers will make the most appropriateinvestment strategy, according to different situations, or they might causeunnecessary losses, even an incredible investment opportunity.