Application of real option pricing theory to evaluation of coal resources investment projects

Investment in coal resources engineering projects has characteristics of long investment period, irreversibility and high uncertainty. Traditional evaluation method for these projects investment is Net Present Value (NPV) or Discounted Cash Flow (DCF) method. This method cannot be involved the coal resources investment uncertainty produced by long investment peroid, great price fluctuation and etc. Therefore it overlooks investment opportunity value of mining projects and underestimates the investment value of coal resources engineering projects. Based on the Real Option Pricing Theory, investment opportunity value under uncertainty is discussed and the models for valuing investment opportunity with characteristics of coal resources projects investment are set up as a new method for investment decision making.