1. The optimal exit of staged investment when consider the posterior probability
- Author
-
Meng Wu and Jiefeng Yang
- Subjects
Optimal design ,050208 finance ,Control and Optimization ,Applied Mathematics ,Strategy and Management ,05 social sciences ,Posterior probability ,Venture capital ,Investment (macroeconomics) ,Discount points ,Atomic and Molecular Physics, and Optics ,Constraint (information theory) ,Microeconomics ,Incentive ,0502 economics and business ,Economics ,050207 economics ,Business and International Management ,Electrical and Electronic Engineering ,Participation constraint - Abstract
The current main method to analyze the staged venture investment is some game models, which finally get the optimal contract between the venture entrepreneurs and the venture capitalists by constructing the participation constraint and the incentive constraint. But this method only considers the probability of the success of the project, and ignores whether the project itself is enforceable or not. This paper introduces the concept of the posterior probability, extends the Bergemann and Hege model from the single period to the multi period. Then by using the posterior probability and the successful chance of the project, this paper analyzes the numerous factors which influence the optimal design of the contract under three conditions, such as the fixed and the floating investment in multi-stage and the time when the successful result is related to the current investment quota. What's more, it dose not only give the optimal stop point but compares it in case of the information symmetry and the contrary condition in the floating multi-stage investment. At the same time, it pays attention to the importance of the posterior probability in the present multi-stage venture investment researches. Last but not the least, it provides a reference for the related researches and makes great significance to the venture investment practice.
- Published
- 2017