Project evaluation in the presence of multiple embedded real options: evidence from the Taiwan High-Speed Rail Project

Bowe, Michael; Lee, Ding Lun

doi:10.1016/j.asieco.2003.12.001

Cited by 58 publications

(25 citation statements)

References 17 publications

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“…More recently, two other empirical ROA works focused on the valuation of structural investments in the transportation sector, were published: Smit (2003) and Bowe and Lee (2004). The first, analyses the expansion of an airport, while the second is apparently pioneer in the analysis of a railway transportation project.…”

Section: Real Options In Major Projects In the Transportation Sectormentioning

confidence: 99%

“…Similarly to Smit (2003), Bowe and Lee (2004) apply binomial analysis. However, they use a logarithmic transformation similar to Trigeorgis (1991), to evaluate the high speed train project in Taiwan, comparing the obtained results with a valuation based on traditional capital budgeting decision techniques.…”

Section: Real Options In Major Projects In the Transportation Sectormentioning

confidence: 99%

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High Speed Rail Transport Valuation

2010

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The present paper investigates the optimal timing of investment for a high speed rail (HSR) project, in an uncertain environment, using a real options analysis (ROA) framework. It develops a continuous time framework with stochastic demand that allows for the determination of the optimal timing of investment and the value of the option to defer in the overall valuation of the project. The modelling approach used is based on the differential utility provided to railway users by the HSR service.

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Section: Real Options In Major Projects In the Transportation Sectormentioning

confidence: 99%

Section: Real Options In Major Projects In the Transportation Sectormentioning

confidence: 99%

High Speed Rail Transport Valuation

2010

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“…A few scenarios would fail to capture the complex uncertainties in a project and that is why scenario analysis is an inadequate tool for valuing the uncertainties associated with a project. Bowe and Lee (2004) also identified ex-post, various options associated with the Taiwan High-Speed Rail Project. They found that the combined embedded options to expand, contract and defer turns a project with a negative NPV into one with a positive NPV.…”

Section: Introductionmentioning

confidence: 99%

“…Ho and Liu (2002) just assumed a project volatility of 40% without outlining how it could be estimated. For the Taiwan High Speed Rail project, Bowe and Lee (2004) estimated volatility from the projected net operating revenues over the life of the concession (at 14.46%), whilst, Huang and Chou (2006) for the same project just used the average volatility of the Taiwan stock market (30%). This creates a problem in determining which valuation is a reliable measure of the extent to which embedded real options can add to the value of a project.…”

Section: Introductionmentioning

confidence: 99%

Impact of Irreversibility and Uncertainty on the Timing of Infrastructure Projects

Doan

Menyah

2013

J. Constr. Eng. Manage.

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This paper argues that because of the irreversibility and uncertainty associated with Build-Operate-Transfer (BOT) infrastructure projects, their financial evaluation should also routinely include the determination of the value of the option to defer the construction start-up. This ensures that project viability is comprehensively assessed before any revenue or loan guarantees are considered by project sponsors to support the project. We show that the framework can be used even in the context of the intuitive binomial lattice model. This requires estimating volatility directly from the evolution of the net operating income whilst accounting for the correlation between the revenue and costs functions. This approach ensures that the uncertainties usually associated with toll revenues, in particular, are thoroughly investigated and their impact on project viability is thoroughly assessed. We illustrate the usefulness of our framework with data from an actual (BOT) toll road project. The results show that by postponing the project for a couple of years the project turns out to be viable, whilst it was not, without the deferral. The evaluation approach proposed therefore provides a better framework for determining when and the extent of government financial support, if any, that may be needed to support a BOT project on the basis of project economics. The analysis may also be applicable to private sector investment projects which are characterised by irreversibility and a high rate of uncertainty.

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“…Examples of the former include applications to toll road development (Rose, 1998 andWooldridge et al, 2002), airport expansion (Smit, 2003), highway development (Zhao et al, 2004), high-speed rail development in Taiwan (Bowe and Lee, 2004), hydropower investment in Norway (Kjaerland, 2007), and hydrogen infrastructure development (van Benthem et al, 2006).…”

Section: Introductionmentioning

confidence: 99%

A barrier options approach to modeling project failure: The case of hydrogen fuel infrastructure

Engelen

Kool

Li³

2016

Resource and Energy Economics

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In this paper, we contribute to the literature by including a knock-out barrier option in a compound real option model to take account of immediate project failure, a socalled sudden death. We apply the model to the case of hydrogen infrastructure development. In our case study, we find that even for the least conservative valuation method no profitable business case can be made for the development of hydrogen as a sustainable transportation mode. However, we do provide some suggestive scenarios that plausible tax schedules can be designed to overcome the starting problems for hydrogen infrastructure development. To the extent that sudden project failure would be predominantly caused by potential reversals in political support, a cheap way to make the development of hydrogen infrastructureand other similar projects -more attractive would be to design credible long-term political commitments to this type of development.

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Project evaluation in the presence of multiple embedded real options: evidence from the Taiwan High-Speed Rail Project

Cited by 58 publications

References 17 publications

High Speed Rail Transport Valuation

High Speed Rail Transport Valuation

Impact of Irreversibility and Uncertainty on the Timing of Infrastructure Projects

A barrier options approach to modeling project failure: The case of hydrogen fuel infrastructure

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