Model Research On Staged Investment And Capacity Selection Under Uncertain Conditions

The relationship between decision flexibility and uncertainty is critical to dealing with the valuation and tradeoff issues involved in capital projects.Among them,an important managerial discretion is to choose to make a one-time lumpy investment in the entire project at a certain point in time,or to divide the entire project into smaller modular projects,with each one invested in stages at different points in time.In the context of sequential capacity expansion,modularity was proved to have a significant impact on project value.In addition,a large number of empirical studies show that the discretion over capacity is also crucial for investment projects,especially for capital-intensive projects.Although many scholars have used real option theory to study the relationship between decision flexibility and uncertainty,their studies are all based on classical geometric Brownian motion.Nevertheless,the real option pricing model is established and developed on the basis of the B-S pricing model.There are differences in market mechanism and endogenous value between real assets and financial assets,and their price moving modes are not completely consistent.In this thesis,applying the real option method and then assuming that the product price of the project follows a mean regression process,the model of the optimal investment timing and optimal capacity selection of stepwise investment is established.In addition,the model is further extended according to the characteristics of the renewable energy project.The specific research contents are as follows:First,in order to investigate how discretion over capacity interacts with the flexibility to choose investment strategies,an optimal timing and optimal capacity model is constructed under stepwise investment by introducing a mean-regression process to describe the uncertainty of project product price,and then the lumpy investment strategy is compared with the stepwise investment strategy.The results show that a higher reversion speed can make up for the expected risks brought by high volatility to a firm,thereby promoting investment.As the long-run mean price level increases,the optimal investment threshold first rapidly decreases and then slowly increases.When the product price follows a mean-reverting process rather than the geometric Brownian motion,discretion over capacity brings greater additional value to a firm,and evidently a firm is more willing to adopt a stepwise investment.Second,for investigating how price uncertainty interacts with policy uncertainty to affect a renewable energy investment firm's investment decisions,the subsidy policy factor is added to the above-mentioned model based on mean regression process.The numerical results indicate that: the risk that a subsidy may be permanently retracted increases the incentive for a firm to invest and reduces the corresponding capacity.Although the provision of a permanent subsidy will stimulate a firm to increase the amount of installed capacity,the expected time for investment rationalization will be further extended.As long as the subsidy may be permanently retracted,the increase in the level of subsidy will hinder investment.The stepwise investment is not always better than the lumpy investment,and subsidy policy has a significant impact on the extra value brought by discretion over capacity.