Application of Compound Option Theory for Evaluating Multi-Stage Investment Project

摘要

Considering the risk of the market and the technology, investors tend to make a multi-stage investment. The traditional discounted cash flow method (DCF) overlooks the value of option in a project and do not reflect the real value of the project. This paper analyzes the characteristics of a multi-phase investment, i.e. the multi-stage compound option and expounds pricing model in n-fold compound option .Finally the model is proved to be valid through a case of multi-stage investment. This paper provides a new viewpoint and method for evaluation of a multi-stage investment project.