Definition of optimal proportion of phased investment

Abstract: Real options approaches can be employed to value the flexibility in the decision-making courses of phased investments. This paper focuses on the two-stage investment problems of venture firms. Firstly, based on the analysis of profit function and real options thinking, stochastic models are proposed to describe the uncertainties of such problems. Then the value function of decision-making flexibility is derived. Finally numerical techniques are employed to calculate the optimal proportions of a case and the influence of investment proportions upon the flexibility value is also analyzed.