Research on Applying Real Option in Investment Decision-Making of Highway Construction Project

In the investment decision-making in the current highway construction projects, the most usually method is based on the method of discount cash flow analysis represented by net present value. However, the risk discount rate of this analysis of investment decision-making methods is often considered the loss and risks faced by the project (that is, uncertainty). The method of treatment of uncertainty is usually achieved by increasing the discount rate to reflect the risk premium, and the results of the increasing discount rate can get the net present value which is lower than true value of the project, so this method can not be right to assess items of the future value brought about by uncertainty. But the real option can reflect the project's value brought about by the uncertainty, so the use of the theory of real option to improve the existing investment decision-making method about highway construction project has a certain degree of feasibility. This article start from the characteristics of real options taken on the analysis of highway construction projects, and set up a real option pricing model of highway construction project, and validate the real option theory is feasible and effective in the aspect of improving decision-making theory and methods of the traditional highway construction project investment by an example. Conclusions can provide theoretical basis for a true value of further excavation of the highway construction project. It also can provide a reference for the enterprises to make the right and reasonable decision-making for investment.