Real option applications in megaproject planning: trends, relevance and research gaps. A literature review

Abstract: The Oxford Handbook of Megaproject Management represents an ambitious attempt to bring together a vast array of scholarship from potentially disparate fields, but also to begin to construct the fou...

Abstract: This paper asks why uncertainties are avoided in dominant megaproject practice while planning scholars are increasingly advocating adaptive planning and uncertainty acknowledgement. We propose a no...

Abstract: Urban designs, and in particular urban masterplans, must deal with an inherently uncertain future. However, in practice, many urban masterplans still seem to underestimate or even ignore uncertaint...

Abstract: Carbon capture and storage (CCS) is one of the key technologies and measures for the energy transition towards achieving the climate targets. Accounting for the high uncertainty, risks, and irreversibility of CCS projects, a growing number of studies apply the real options (RO) approaches which allow flexibility in the valuation of uncertain investment. Various RO models and valuation techniques are adopted and the critical analysis of the research trends and research hotspots in RO designs in CCS investments has not been made yet. This study employs a bibliometric analysis to examine the features of CCS literature including the research focus and trends as well RO uncertainty and models, types of options, and valuation techniques. The results present a comprehensive overview of the state-of-the-art which provides researchers a concrete basis for future research and directions for further development. This further provides energy and environmental policymakers and CCS project planners with valuable insights on various aspects of CCS policy and project design.

Abstract: Lisbon Airport, the most important in Portugal, has reached its capacity due to an enormous boost to the tourism sector. To address this, a new airport in Montijo, which would receive point-to-poin...

Abstract: If options are correctly priced in the market, it should not be possible to make sure profits by creating portfolios of long and short positions in options and their underlying stocks. Using this principle, a theoretical valuation formula for options is derived. Since almost all corporate liabilities can be viewed as combinations of options, the formula and the analysis that led to it are also applicable to corporate liabilities such as common stock, corporate bonds, and warrants. In particular, the formula can be used to derive the discount that should be applied to a corporate bond because of the possibility of default.

Abstract: Many corporate assets, particularly growth opportunities, can be viewed as call options. The value of such ‘real options’ depends on discretionary future investment by the firm. Issuing risky debt reduces the present market value of a firm holding real options by inducing a suboptimal investment strategy or by forcing the firm and its creditors to bear the costs of avoiding the suboptimal strategy. The paper predicts that corporate borrowing is inversely related to the proportion of market value accounted for by real options. It also rationalizes other aspects of corporate borrowing behavior, for example the practice of matching maturities of assets and debt liabilities.

Abstract: Economics defines investment as the act of incurring an immediate cost in the expectation of future rewards. Firms that construct plants and install equipment, merchants who lay in a stock of goods for sale, and persons who spend time on vocational education are all investors in this sense. Somewhat less obviously, a firm that shuts down a loss-making plant is also \"investing\": the payments it must make to extract itself from contractual commitments, including severance payments to labor, are the initial expenditure, and the prospective reward is the reduction in future losses.

Abstract: Es gibt nur wenige vergleichende Studien uber reale und geschatzte Kosten derEntwicklung von Verkehrsinfrastruktur. Wo solche Studien vorliegen, beziehen siesich auf Einzelfalle, oder die Stichprobe ist zu klein, um systematische statistische Analysen zuzulassen (Bruzelius et al. 1998, Fouracre et al. 1990, Hall 1980, Nijkamp/Ubbels 1999, Pickrell 1990, Skamris/Flyvbjerg 1997, Szyliowicz/Goetz 1995, Walmsley/Pickett 1992). Nach unserem Kenntnisstand ist bislang nur eine Studie veroffentlicht, die auf der Basis von 66 Transportprojekten einen breit angelegtenZugang wahlt und erste Schritte auf dem Weg zu einer stichhaltigen statistischen Analyse unternimmt (Merewitz 1973a, 1973b).Existing comparative studies of actual and estimated costs in transportation infrastructure development are few. Where such studies exist, they are typically single-case studies or they cover a sample of projects too small to allow systematic, statistical analyses (Bruzelius et al., 1998; Fouracre et al., 1990; Hall, 1980; Nijkamp & Ubbels, 1999; Pickrell, 1990; Skamris & Flyvbjerg, 1997; Szyliowicz & Goetz, 1995; Walmsley & Pickett, 1992). To our knowledge, only one study exists that, with a sample of 66 transportation projects, approaches a large-sample study and takes a first step toward valid statistical analysis (Merewitz, 1973a, 1973b).The English version of this article can be found at: http://www.ssrn.com/abstract=2278415Den Svenska versionen av denna artikel finns pa: http://papers.ssrn.com/abstract=2278382La versione italiana di questo documento e disponibile al seguente link: http://www.ssrn.com/abstract=2278294

Abstract: This article presents results from the first statistically significant study of cost escalation in transportation infrastructure projects. Based on a sample of 258 transportation infrastructure projects worth US$90 billion and representing different project types, geographical regions, and historical periods, it is found with overwhelming statistical significance that the cost estimates used to decide whether such projects should be built are highly and systematically misleading. Underestimation cannot be explained by error and is best explained by strategic misrepresentation, that is, lying. The policy implications are clear: legislators, administrators, investors, media representatives, and members of the public who value honest numbers should not trust cost estimates and cost-benefit analyses produced by project promoters and their analysts.