Investment Decision Making for PPP Projects Based on the Black-Scholes Real Option Pricing Model

摘要

The option properties of PPP projects investment are recognized by analyzing the investment characteristics of PPP projects from the perspective of a private sector. PPP project investment can be viewed as a European call option and thus a pricing model for option value of PPP projects is set up based on Black-Scholes option pricing model. Through empirical analysis of Beijing Metro Line 4 project, we conclude that the total value of a PPP project considering the option value is greater than that obtained by the traditional valuation tools (net present value). Therefore, the application of real option theory in the field of PPP project investment decision, which fully considers the flexibility of the private sector, allows the decision closer to the actual situation and helps to improve the accuracy of the decision making.