The Derivation of Diffusion-Jump Modes for Power Plant Projects Under Risk
High market risks are embedded in mega-scale projects.These risks includepoliticalinstability, economic
instability, social risks, technical risks, and other non-financial factors. All these risk factors will have directly impacted on
financial feasibility of projects. Hence, it isnecessary to performan elaborate financial analysis of projects at planning stage.
A jump diffusion option-pricing model is derived for considering the managerial flexibility of scale expansion in the
financial analysis of projects to increase the project value.
Keywords- Jump Diffusionoption Pricing Model, The Real Option, Call Option.