Valuation Model of Growth Companies Based on Real Option and Its Empirical Investigation

摘要

Discounted cash flow is the main tool for valuing projects and companies, and Real options techniques can augment valuation. We apply real option theory and capital-budgeting techniques to the problem of valuing a growth company. This paper simulates the case company's value based on a revised Schwartz and Moon valuation model, and at last analyzes key drivers of improving its value. We formulate the simplified model in continuous time, estimate its parameters, and solve the model by an empirical investigation. Perhaps more importantly, this paper offers insights into the practical implementation the model in our country. An important challenge to implementing the original model was estimating the various parameters. Here, this paper improve the procedure by setting the speed of adjustment parameters equal to one another, and by inferring the risk-adjustment parameter from the observed beta of the company's stock price.