Governments worldwide have been encouraging private participation in transportation infrastructure. To increase the feasibility of a project, public-private partnership (PPP) may include guarantees or other support to reduce the risks for private investors. It is necessary to value these opportunities under a real options framework and thereby analyze the project's economic feasibility and risk allocation. However, within this structure, sponsors have an implicit option to abandon the project that should be simultaneously valued. Thus, this article proposes a hypothetical toll road concession in Brazil with a minimum traffic guarantee, a maximum traffic ceiling, and an implicit abandonment option. Different combinations of the minimum and maximum levels are presented, resulting in very high or even negative value added to the net present value (NPV). The abandonment option impacts the level of guarantee to be given. Governments should calibrate an optimal level of guarantees to avoid unnecessarily high costs, protect the returns of the sponsor, and lower the probability of abandonment.

The conditional CAPM is characterized by time-varying market beta. Based on state-space models approach, beta behavior can be modeled as a stochastic process dependent on conditioning variables related to business cycle and estimated using Kalman filter. This paper studies alternative models for portfolios sorted by size and book-to-market ratio in the Brazilian stock market and compares their adjustment to data. Asset pricing tests based on time-series and cross-sectional approaches are also implemented. A random walk process combined with conditioning variables is the preferred model, reducing pricing errors compared to unconditional CAPM, but the errors are still significant. Cross-sectional test show that book-to-market ratio becomes less relevant, but past returns still capture cross-section variation.

Goal: The objective of this article is twofold: (i) analyze the investment in a new refinery in Brazil and identify the optimal moment to invest; and (ii) model the crack spread adjusted to the Brazilian market. Design / Methodology / Approach: The main uncertainties given by the crack spread and the foreign exchange rate were modeled as a continuous mean reversion model and geometric Brownian motion, respectively. The project was valued based on a real-option approach, including the option to postpone and the option to temporarily shut down. The first was assessed from analytical solution of the differential equation, while the latter was obtained from Monte Carlo simulation.     Results: The investment decision changes depending on the expiration date of the postponement option and the stochastic treatment of the initial investment. The temporary shutdown option increases the value of the refinery and may change the decision of postponement. Limitations of the investigation: The crack spread was modeled based on international market because of limited availability of data from the Brazilian market. Additionally, results are dependent on the uncertainties and flexibilities modeled. Practical implications: The analysis comprising both options is especially relevant because there are refinery projects discontinued in Brazil, and the country is an oil products’ importer. Originality / Value: The paper contributes with an analysis in the refining industry considering the optimal moment to invest based on the interaction of two different options. Especially original is the crack spread modeling adapted to the Brazilian market.

Empirical studies have revealed that the conditional Capital Asset Pricing Model (CAPM) has a higher explanatory power than its unconditional version, particularly for the model in state-space form where the beta is estimated using Kalman filter. Most empirical analyses are based on stock portfolios to explain financial anomalies, but only a few studies proposed improving investment fund performance. The main contribution of this study is the assessment of Brazilian investment funds through traditional measures estimated from the CAPM model in state-space form with heteroscedastic and homoscedastic errors compared to alternative models, such as the unconditional CAPM and a four-factor model. Using a sample of stock funds from May 2005-April 2015, the results indicate that the conditional CAPM model produces better results than the alternative models, providing better performance evaluation practices for funds in both stock-picking and market-timing ability.

Análise de investimentos; teoria de opções reais; processos estocásticos; refinaria; crack spread.