The application of fuzzy-real option theory in BOT project investment decision-making

Real option method can overcome the limitations of the traditional NPV method. This paper first analyzed the embedded real option feature in the BOT infrastructure projects and proved the applicability of real option theory. However, the existing evaluation method of the real options assumes that the present value of expected cash flows and investment costs is certainty numbers, which is unconvincing due to the high degree of uncertainty in actual projects. Thus, in response to this drawback of the hypothesis, this article assume that the present value of expected cash flow, investment costs and risk-free interest rate are the fuzzy numbers, and by making improvement to the B-S pricing model, established the fuzzy-real options evaluation model, and then gives a case study to verify the validity of the model. On this basis the real option method is introduced into project evaluation and investment decision-making in the BOT project feasibility study.