A real option approach for valuating a venture capital project

First, the option nature of a venture capital projects is analyzed, and a venture capital project is regarded as the compound option produced by a series of European options. Then, an approach, i.e. a real option model and its algorithm, are presented for assessing the value of venture capital project. The presented approach overcomes the defect of which the flexible value of a project is not considered in the traditional NPV method. Finally, a numerical example is given to illustrate the use of the proposed method.