A REAL OPTIONS FRAMEWORK FOR DEALING WITH UNCERTAINTY IN SUSTAINABLE TRANSPORT INVESTMENTS

L. Salahaldin () and T. Granger ()
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L. Salahaldin: Institut Telecom, Telecom Ecole de Management, 9 rue Charles Fourier, 91000 Evry, France
T. Granger: Université Paris Dauphine, Place du Maréchal de Lattre de Tassigny, 75116 Paris, France

Asia-Pacific Journal of Operational Research (APJOR), 2013, vol. 30, issue 04, 1-27

Abstract: In this paper, we develop a real options framework that sets rules for investment decision in sustainable transport projects under both demand and costs uncertainties. First, we present the model we use to calculate the cost of transport externalities. Using stochastic analysis, we show how to maximize inter-generational utility by choosing the optimal time to invest. The method is implemented using a dynamic programming approach that gives, at each moment, the thresholds for demand and cost for which it is optimal to invest. We calculate the expected waiting time until investing and perform a sensitivity analysis to study the impact of the different parameters on the decision.

Keywords: Real options; sustainable transport; population-growth; uncertainty; inter-generational utility; C61; D81; L91; Q56 (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:wsi:apjorx:v:30:y:2013:i:04:n:s0217595913500024

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DOI: 10.1142/S0217595913500024

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