The Evaluation of Venture Capital as an Installment Option and Real Options

The evaluation of VC projects (companies) is very important because the present value of them defines the proportion of Entrepreneur’s profit from all future profit of that project (company). In this article, VC projects have been evaluated by using Real Options and Installment Option. In order to doing that, the lower and upper bounds based on “No-Arbitrage” condition are obtained for pricing installment option in both discrete and continuous time. These bounds have been used for pricing Venture Capital projects. With simulation of stock price by Monte Carlo, they have been compared with DTS bounds (the bounds obtained by other authors). Results reveal the bounds in the present study are more effective than DTS bounds. For more confidence, the Bounds have been compared with Monte Carlo simulation based on Least Square approach (we have changed that approach to be used in the evaluation of Installment Option); as expected, they have confirmed each other.