The impact of stochastic properties of traffic demand on real option value in road projects

Niclas Krüger

No 2012:17, Working papers in Transport Economics from CTS - Centre for Transport Studies Stockholm (KTH and VTI)

Abstract: In this paper we examine the stochastic properties that long term aggregate traffic demand exhibits. Based on the results of the time series analysis, we examine how fractionally integrated processes affect real option valuation in road projects. We conclude that the long memory property we find in long term aggregate traffic demand using Swedish data, implying that a shock in demand has persistent positive effects on future demand, leads to higher option values in road projects compared to the values from a standard model using geometric Brownian motion.

Keywords: Real option analysis; Fractional Brownian motion; Monte Carlo simulation (search for similar items in EconPapers)
JEL-codes: H54 R42 (search for similar items in EconPapers)
Pages: 33 pages
Date: 2012-06-20
New Economics Papers: this item is included in nep-ppm, nep-tre and nep-ure
Note: Real option analysis; Fractional Brownian motion; Monte Carlo simulation
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:ctswps:2012_017

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