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Staged Venture Capital Investment considering Unexpected Major Events

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  • Yindong Zhang
  • Kaili Xiang
  • Chuan Ding
  • Tao Chen

Abstract

This paper presents a dynamic model of capital financing, taking into consideration unexpected major events occurring within continuous time model. We are considering a special jump-diffusion model first described by Samuelson (1973) while using traditional geometric Brownian motion. This paper seeks to accurately show the innovative project valuation when unexpected major events occur and get the analytical results of the project option value. Furthermore, we analyzed the impact of multistaged financing; results indicated that both sources of uncertainty positively impact the project option value; particularly, the option price when considering unexpected major events occurrence is larger than the option price without unexpected major events. Based on a comparative-static analysis, new propositions for optimal amount of investment and optimal level of project are derived from simulations.

Suggested Citation

  • Yindong Zhang & Kaili Xiang & Chuan Ding & Tao Chen, 2017. "Staged Venture Capital Investment considering Unexpected Major Events," Discrete Dynamics in Nature and Society, Hindawi, vol. 2017, pages 1-8, March.
    • Handle: RePEc:hin:jnddns:9427285
    DOI: 10.1155/2017/9427285
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