The impacts of real options analysis on EU co-financing policy: the case of Ponta Delgada Port in the Azores

From theoretical real options models to pragmatic decision making: Required steps, opportunities and threats

“…RO have also been applied to investments in airlines (Hu et al, 2019) and container shipping capacity under uncertainty (Haehl & Spinler, 2018;Rau & Spinler, 2016, 2017. A nice case study containing an application of RO to the expansion of an existing port, is given by Pimentel et al (2020). They confirm that the RO value is the sum of the static NPV and the option value of flexibility under uncertainty.…”

“…Therefore, the two main empirical contributions of this paper, (1) developing a tool that allows applying the complex, continuous RO models more easily and (2) quantifying the benefits for transportation investment project decision making, are unmissable steps to bring continuous RO models one step closer to an implementation in practice, which Mathews et al (2007) already advocated for. However, because RO calculations are often too complex to explain to managers and practitioners, it could still be worthwhile to elaborate the selected optimal project scenario in detail using a complementary NPV approach, based on DCF (Pimentel et al, 2020).…”

“…In practice, the traditional net present value (NPV) approach based on the discounted cash flow (DCF) method is often used to evaluate port investment projects, because practitioners, managers and decision makers find it easier to model and explain (Pimentel et al, 2020). However, this traditional approach neglects the value of flexible options in irreversible projects and uncertainty, such as the option to delay investment.…”

“…Notwithstanding the large number of applications of discrete-time discrete-state RO models involving binomial trees, Pimentel et al (2020) argue that these models are not sufficiently accurate for complex project evaluation under uncertainty. Moreover, Martins et al (2017) advocate for a maximal inclusion of flexibility in projects.…”

Towards Optimized ARMGs’ Low-Carbon Transition Investment Decision Based on Real Options

“…Specifically, real options models can be divided into continuous-time models and discrete-time models [33]. Continuous-time models mainly include analytical equations (Black Scholes model), stochastic differential equations, and Monte Carlo simulation [34]. Discrete-time models mainly include a binomial tree, trinomial tree, and multinomial tree [35,36].…”