ISSN : 1796-217X
Volume : 4    Issue : 3    Date : May 2009

Decision-making for Investment Based On Option and Term Structure
Qizhi He
Page(s): 191-198
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Static and dynamic term structure model of interest rates are studied according to the need for
using. As for the static model, exponential splines model is studied and every cash flow of the
project is discounted relatively accurately by getting the model of discount rate. As for the dynamic
model, a basic model is studied, and the option pricing formula under changing risk-free rate is
gotten by bringing it into the option pricing formula. And then a complex model which is more
approaching the fact is used to describe the moving pattern of risk-free interest rates and the former
formula that have been educed is modified. Finally, Empirical research is carried on based on the
data of Chinese financial market.

Index Terms
real option, exponential splines, simulation, GMM(Generalized Method of Moments)