Real Options in Project Investment Decision-Making-Problems and Optimization

Optionsin investment decision-making evaluation of oil projects has some limitations. ROaR(Real Options at Risk)model can overcome the defect of Real Options,which gives a fixed value to the parameters,and thus can clearly depict the project option value under different risk profiles.When ROaR is used for investment evaluation,however,if a very poor risk or extreme risk occurs in investment operation,the project will cost more than expected.Consequently,the evaluation results may turn out to be opposite to the practical situation and cause the failure of the project investment-a decision-making paradox.In the present study,utility theory of project decision-making is used to build the optimization method for controlling the losses of Real Options and the optimization evaluation model for controlling the project baseline,which can effectively control the risk within the scope of the set.