Research on Value Evaluation Method of Investment Project Based on Fuzzy Composite Real Options

Venture capital investments are characterized by high input,high yield,and high risk.Due to the complexity of the market environment,stage-by-stage investment is becoming increasingly important.Traditional evaluation methods like comparison,proportion,maturity,internal rate of return,scenario analysis,decision trees,and net present value cannot fully consider the uncertainty and stage characteristics of the project.The fuzzy real options method addresses this by combining real option theory,fuzzy number theory,and composite option theory to provide a more accurate and objective evaluation of Public-Private Partnership(PPP)projects.It effectively considers the interaction of options and the ambiguity of project parameters,making it a valuable tool for project evaluation in the context of venture capital investment.

Real option pricing method for R&D investment under changing risk-free rate and discount rate

The polynomial spline model, which belongs to the static term structure model of interest rates, is studied. Every cash flow of the project is discounted relatively accurately by obtaining the discount rate from the static term structure model of interest rates. A simple basic model, which belongs to the dynamic term structure model, is studied, and the option pricing formula under changing risk-free rates is obtained by bringing it into the option pricing formula. Both dynamic and static term structure models are estimated by the use of the data of buy-back rates and the Shanghai Stock Exchange, and an example is given to compare the differences between the traditional method and the method under the changes in the interest rates and the discount rates.

Reserve estimation of an open pit mine under price uncertainty by real option approach

Reserve estimation is a key to find the correct NPV in a mining project. The most important factor in reserve estimation is the metal price. Metal price fluctuations in recent years were exaggerated, and imposed a high degree of uncertainty to the reserve estimation, and in consequence to the whole mine planning procedure. Real option approach is an efficient method of decision making in the uncertain conditions. This approach has been used for evaluation of defined natural resources projects until now. This study considering the metal price uncertainty used real option approach to prepare a methodology for reserve estimation in open pit mines. This study was done on a copper cylindrical deposit, but the achieved methodology can be adjusted for all kinds of deposits. This methodology was comprehensively described through the examples in such a manner that can be used by the mine planners.

Integration of real options into short-term mine planning and production scheduling

Commodity prices have fallen sharply due to the global financial crisis. This has adversely affected the viability of some mining projects, including leading to the possibility of bankruptcy for some companies. These price falls reflect uncertainties and risks associated with mining projects. In recent years, much work has been published related to the application of real options pricing theory to value life-of-mine plans in response to long term financial uncertainty and risk. However, there are uncertainties and risks associated with medium/short-term mining operations. Real options theory can also be applied to tactical decisions involving uncertainties and risks. This paper will investigate the application of real options in the mining industry and present a methodology developed at University of Queensland, Australia, for integrating real options into medium/short-term mine planning and production scheduling. A case study will demonstrate the validity and usefulness of the methodology and techniques developed.

Investment in deepwater oil and gas exploration projects:a multi-factor analysis with a real options model

Deepwater oil and gas projects embody high risks from geology and engineering aspects, which exert substantial influence on project valuation. But the uncer- tainties may be converted to additional value to the projects in the case of flexible management. Given the flexibility of project management, this paper extends the classical real options model to a multi-factor model which contains oil price, geology, and engineering uncertainties. It then gives an application example of the new model to evaluate deepwater oil and gas projects with a numerical analytical method. Compared with other methods and models, this multi-factor real options model contains more project information. It reflects the potential value deriving not only from oil price variation but also from geology and engi- neering uncertainties, which provides more accurate and reliable valuation information for decision makers.

Real Option and Valuation of CNOOC Ltd

This paper introduces a real option approach to valuation of oil companies and uses the real option pricing model to value CNOOC Ltd. at the time of its IPO. The empirical result shows that the option pricing value of CNOOC Ltd. exceeds its IPO price at about 21%.

Franchise ownership redirection:real options perspective

Background:For over 40 years,the franchise ownership redirection hypothesis has attracted the attention of many scholars.This study,differing from previous ones,proposes an alternative approach for this hypothesis using a real options framework with the extension of agency theory.Method:The real options model is built using the least square Monte Carlo method,where the franchisor’s decision to franchise is perceived as a deferred investment while maintaining the right of future acquisition.Result:Tested using monte carlo simulation based hypothetical case,the model shows a different result from classical real options call model.This is mainly due to franchise contractual arrangement,where royalty fee lower the threshold of acquisition cost in converting the franchise outlet to company owned.Conclusion:The aim of this study is to create an analytical framework that helps a franchisor decide whether or not toacquire and convert a franchise unit to a company-owned unit at a certain point in time,analyzing the choice as a deferment of investment.The franchisors that faces the opportunity to optimize profit by converting the franchise unit to a company-owned unit should acknowledge it as real options thus negotiate the terms with their franchisees.

Real Options and Govemment Supports to Infrastructure Investments： An Empirical Study

This paper provides evidence for the relationship between various forms of real options in infrastructure projects and the types and levels of government supports to the infrastructure investments. It analyzes the common real options and real options-based strategic investments and aligns them with the common types of public-private partnership （PPP） infrastructure projects. It then develops models to show that the real options incorporated into the different types of PPP infrastructure projects affect the level of direct government cash supports to the projects and hence the viabilities of such projects. The paper however shows that the relationship between the embedded real options and viabilities of infrastructure projects can be influenced by such factors as contract period and percentage of private sector contributions to the projects.

The Real Option Game Model to the Technology Innovation Investment Strategy

The real option game theory is a new effective method to analyze the project investment decision containing uncertain factors in the incomplete competition circumstance. Based on the introduction of the development of real option game method, this paper puts forward a real option game model to research on the investment opportunity and investment strategy of technology innovation involved two competitors. The varies of the value of project bring on three kinds of game equilibrium, that is the corporate investment equilibrium strategy, the leader ＆ follower investment equilibrium strategy and the corporate delay equilibrium strategy.

R & D project's investment evaluation based on real option and its value at risk

The authors looked upon it as real options and applied the VaR(Value at Risk) method to the evaluation of its risk value based on the analysis of R & D project investment characteristics,and advanced the evaluation model of the project’s return and risk according to financial theories.This paper expounded the two dimension evaluation model of project,and divided it into five decision making regions.

Trinomial tree model of the real options approach used in mining investment price forecast and analysis

In order to effectively avoid the defects of a traditional discounted cash flow method, a trinomial tree pricing model of the real option is improved and used to forecast the investment price of mining. Taking Molybdenum ore as an example, a theoretical model for the hurdle price under the optimal investment timing is constructed. Based on the example data, the op- tion price model is simulated. By the model, mine investment price can be computed and forecast effectively. According to the characteristics of mine investment, cut-off grade, reserve estimation and mine life in different price also can be quantified. The result shows that it is reliable and practical to enhance the accuracy for mining investment decision.

Using Real Option to Frame E-commerce Investment Problem

Due to great business potential in E-commerce, the traditional method is not an appropriate technique to make investment decision. Consequently, a new approach--Real Option should be applied. Based on the characteristics of investment in E-commerce, this paper analyzes the function and advantages of the Real Option and the differences between the NPV and Real Option.

The Application of Expand Option of Real Options in Human Resources Evaluation

The traditional models of evaluating human resources are mainly based upon the discounted value of future payment, but these models fail to take the employment risk into account, and often neglect the uncertainty and underes- timate the human resource value. This paper first introduces the option theory, and then presents human resources as the real commodity for the call option. Second, concerning the choices for the uncertainty decision, the decisions of delay- ing the employment of the human resources, expanding or deducing the scale of human resources, giving up or chang- ing human resources, etc., are made to deal with the future uncertainties appropriately. This will cause the investment to be more beneficial or to reduce the loss. Finally, the expand option theory of real options is used to evaluate the value of reinvestment in human resources, and the expand option theory could be provided as a reference for management im- plementation and decision-making in human resources.

Real Option and Strategic Decision Making of Duopoly

Other than traditional valuation methods, the real option approach captures the flexibility inherent in investment decisions to make the optimal decision of a finn in isolation from its competitors. In reality, however, the actions or decisions of competing fn-ms （practical or potential） often affect each other＇s investment opportunity. The value of the project for the firms is assumed to follow a Geometric Brownian motion, and the model combines game theory and the theory of irreversible investment under uncertainty. This paper characterizes the resulting Nash equilibrium under different assumptions on the information that the firms have each other＇s valuation for the project.

The Impacts of Carbon Sequestration on Oil Production Projects Decision-Making： A Real Option Valuation Approach

A traditional real option model is applied to a simulation of an oil production project. This analysis includes a carbon sequestration structure cost and possible revenues from carbon credit markets. The evaluation focuses on the determination of an optimal timing for the investment in different scenarios, regarding the volatility of the uncertain variable, oil prices. Historical prices data from different moments are used to estimate different prices uncertainty scenarios and its impacts on the decision making on building a carbon sequestration structure. The results are compared between a real option model to the ones obtained using the traditional net present value evaluation. Trigger point of investments are defined for different scenarios with and without carbon sequestration. There is also an analysis of the effects on decision-making in different scenarios for carbon market prices. It is perceived an important difference in the decision making considering the different methods of economic analysis. The real option model is a fundamental valuation tool in periods of high price volatility and higher sunk costs added to a project such as the carbon sequestration structure. Greenhouse gas projects demand high oil prices, positive market trend expectation and volatility.

Cost-benefit comparison of carbon capture,utilization,and storage retrofitted to different thermal power plants in China based on real options approach

A trinomial tree model based on a real options approach was developed to evaluate the investment decisions on carbon capture,utilization,and storage(CCUS)retrofitted to the three main types of thermal power plants in China under the same power generation and CO2 emissions levels.The plant types included pulverized coal(PC),integrated gasification combined cycle(IGCC),and natural gas combined cycle(NGCC)plants.We take into account a subsidy policy consistent with the 45Q tax credit of the U.S.,as well as uncertainty factors,such as carbon price,technological progress,CO_(2) geological storage paths,oil price,and electricity price.The results showed that the investment benefit of ordinary NGCC power plants is 93.04 million USD.This provides greater economic advantages than the other two plant types as their investment benefit is negative if the captured CO_(2) was used for enhanced water recovery(EWR),even if 45Q subsidies are provided.Compared with NGCC+CCUS power plants,PC+CCUS and IGCC+CCUS power plants have more advantages in terms of economic benefits and emission reduction.The 45Q subsidy policy reduced the critical carbon price,which determines the decision to invest or not,by 30.14 USDt^(-1) for the PC and IGCC power plants and by 15.24 USDt^(-1) for the NGCC power plants.Nevertheless,only when the subsidy reaches at least 71.84 USDt^(-1) and the period limit is canceled can all three types of power plants be motivated to invest in CCUS and used the capture CO_(2) for EWR.Overall,the government should focus on the application of CCUS in coal-fired power plants(in addition to developing gas power generation),especially when CO_(2) is used for enhanced oil recovery(EOR).The government could introduce fiscal policies,such as 45Q or stronger,to stimulate CCUS technology development in China.

STRATEGIC EXERCISE OF REAL OPTIONS:INVESTMENT DECISIONS IN TECHNOLOGICAL SYSTEMS

Viewing investment projects in new technologies as real options, this paper studies the effects of endogenous competition and asymmetric information on the strategic exercise of real options. We first develop a multi-period, game-theoretic model and show how competition leads to early exercise and aggressive investment behaviors and how competition erodes option values. We then relax the typical full-information assumption found in the literature and allow information asymmetry to exist across firms. Our model shows, in contrast to the literature that payoff is independent of the ordering of exercise, that the sequential exercise of real options may generate both informational and payoff externalities. We also find some surprising but interesting results such as having more information is not necessarily better.

Real Option—A New Approachin the Evaluation of TelecomInvest ment Projects

This paper gives a new method into the evaluating system of teleeom investment projects, i.e. Real Option. This may overcome the defects resulted from employing Net Present Value （NPV）, which is nova used in the evaluation of telecom projects. A theoretical analysis of Real Option is provided, followed by an example of telecom investment project to illustrate the differences between the two methods.

Real option-based optimization for financial incentive allocation in infrastructure projects under publicprivate partnerships

Financial incentives that stimulate energy investments under public-private partnerships are considered scarce public resources,which require deliberate allocation to the most economically justified projects to maximize the social benefits.This study aims to solve the financial incentive allocation problem through a real option-based nonlinear integer programming approach.Real option theory is leveraged to determine the optimal timing and the corresponding option value of providing financial incentives.The ambiguity in the evolution of social benefits,the decision-maker’s attitude toward ambiguity,and the uncertainty in social benefits and incentive costs are all considered.Incentives are offered to the project portfolio that generates the maximum total option value.The project portfolio selection is formulated as a stochastic knapsack problem with random option values in the objective flinction and random incentive costs in the probabilistic budget constraint.The linear probabilistic budget constraint is subsequently transformed into a nonlinear deterministic one.Finally,the integer non-linear programming problem is solved,and the optimality gap is computed to assess the quality of the optimal solution.A case study is presented to illustrate how the limited financial incentives can be optimally allocated under uncertainty and ambiguity,which demonstrates the efficacy of the proposed method.

A novel stochastic modeling framework for coal production and logistics through options pricing analysis

We propose a novel stochastic modeling framework for coal production and logistics using option pricing theory.The problem of valuing the inherent real optionality a coal producer has when mining and processing thermal coal is modelled as pricing spread options of three assets under the stochastic volatility model.We derive a three-dimensional Fast Fourier Transform(“FFT”)lower bound approximation to value the inherent real optionality and for robustness check,we compare the semi-analytical pricing accuracy with the Monte Carlo simulation.Model parameters are estimated from the historical monthly data,and stochastic volatility parameters are obtained by matching the Kurtosis of the low-ash diff data to the Kurtosis of the stochastic volatility process which is assumed to follow Cox–Ingersoll–Ross(“CIR”)model.