Analysis on coal mine investment decision based on binomial tree pricing model

Coal resource plays an irreplaceable role in economy development, which decides the importance of coal mine investment. The influencing factors of coal mine investment are complicated and diversified, so the valuation should be flexible. In this paper, firstly, the concept and classification of real option are introduced. Then, combining to the compound binomial tree for stages, the principle and main equations of binomial tree pricing model are described. At last, net present value method and binomial tree pricing model are brought to do empirical research respectively. In this way, binomial tree pricing model is proved to evaluate coal mine investment project accurately, which to some extent can conduct how to invest the coal mine project with high risk.