A tetranomial tree real option model on renewable energy R&D project valuation

The real option models have been developed vigorously by many researchers and been applied in kinds of fields since 1970s. Meanwhile, the traditional real option models usually considered only one kind of risk and ascribe the other risk conditions to market price. Actually, there is definitely not only one risk condition in any project. Especially in new technology development which is aim to substitute for existed technology or product, the value of project depends on technical risk and market price. So far, this dissertation attempts to include two independent risk sources simultaneously and proposed a tetranomial tree model to measure the option value of a new research and development project. It uses tetranomial tree model to simulate several scenarios of market trade, feed-in tariffs, and subsidies with R&D risks and market energy price changes. Than, it discusses the real option values of renewable energy technological research project on different scenarios.