IDEAS home Printed from https://ideas.repec.org/p/hhs/ctswps/2012_017.html
   My bibliography  Save this paper

The impact of stochastic properties of traffic demand on real option value in road projects

Author

Abstract

In this paper we examine the stochastic properties that long term aggregate traffic demand exhibits. Based on the results of the time series analysis, we examine how fractionally integrated processes affect real option valuation in road projects. We conclude that the long memory property we find in long term aggregate traffic demand using Swedish data, implying that a shock in demand has persistent positive effects on future demand, leads to higher option values in road projects compared to the values from a standard model using geometric Brownian motion.

Suggested Citation

  • Krüger, Niclas, 2012. "The impact of stochastic properties of traffic demand on real option value in road projects," Working papers in Transport Economics 2012:17, CTS - Centre for Transport Studies Stockholm (KTH and VTI).
    • Handle: RePEc:hhs:ctswps:2012_017
    Note: Real option analysis; Fractional Brownian motion; Monte Carlo simulation
    as

    Download full text from publisher

    File URL: http://www.transportportal.se/SWoPEc/CTS2012-17.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Flyvbjerg,Bent & Bruzelius,Nils & Rothengatter,Werner, 2003. "Megaprojects and Risk," Cambridge Books, Cambridge University Press, number 9780521009461, November.
    2. Saphores, Jean-Daniel M. & Boarnet, Marlon G., 2006. "Uncertainty and the timing of an urban congestion relief investment.: The no-land case," Journal of Urban Economics, Elsevier, vol. 59(2), pages 189-208, March.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Schreiner, Lena & Madlener, Reinhard, 2022. "Investing in power grid infrastructure as a flexibility option: A DSGE assessment for Germany," Energy Economics, Elsevier, vol. 107(C).
    2. Ahsan Nawaz & Xing Su & Qaiser Mohi Ud Din & Muhammad Irslan Khalid & Muhammad Bilal & Syyed Adnan Raheel Shah, 2020. "Identification of the H&S (Health and Safety Factors) Involved in Infrastructure Projects in Developing Countries-A Sequential Mixed Method Approach of OLMT-Project," IJERPH, MDPI, vol. 17(2), pages 1-18, January.
    3. Cantarelli, C.C. & Flyvbjerg, B. & Buhl, S.L., 2012. "Geographical variation in project cost performance: the Netherlands versus worldwide," Journal of Transport Geography, Elsevier, vol. 24(C), pages 324-331.
    4. Gabriel J Power & Charli D. Tandja M. & Josée Bastien & Philippe Grégoire, 2015. "Measuring infrastructure investment option value," Journal of Risk Finance, Emerald Group Publishing, vol. 16(1), pages 49-72, January.
    5. Zhao, Na, 2019. "Managing interactive collaborative mega project supply chains under infectious risks," International Journal of Production Economics, Elsevier, vol. 218(C), pages 275-286.
    6. Michael Regan, 2013. "Public project procurement and the case for public–private partnerships," Chapters, in: John Farrar & David G. Mayes (ed.), Globalisation, the Global Financial Crisis and the State, chapter 8, pages 172-196, Edward Elgar Publishing.
    7. Holz-Rau, Christian & Scheiner, Joachim, 2011. "Safety and travel time in cost-benefit analysis: A sensitivity analysis for North Rhine-Westphalia," Transport Policy, Elsevier, vol. 18(2), pages 336-346, March.
    8. Leheis, Stéphanie, 2012. "High-speed train planning in France: Lessons from the Mediterranean TGV-line," Transport Policy, Elsevier, vol. 21(C), pages 37-44.
    9. Morgenroth, Edgar & FitzGerald, John & FitzGerald, John, 2006. "Summary and Conclusions," Book Chapters, in: Morgenroth, Edgar (ed.),Ex-Ante Evaluation of the Investment Priorities for the National Development Plan 2007-2013, chapter 24, pages 317-333, Economic and Social Research Institute (ESRI).
      • Baker, Terence J. & FitzGerald, John & Honohan, Patrick & FitzGerald, John & Honohan, Patrick, 1996. "Summary and Conclusions," Book Chapters, in: Baker, Terence J. (ed.),Economic Implications for Ireland of EMU, chapter 12, pages 339-352, Economic and Social Research Institute (ESRI).
    10. Litsiou, Konstantia & Polychronakis, Yiannis & Karami, Azhdar & Nikolopoulos, Konstantinos, 2022. "Relative performance of judgmental methods for forecasting the success of megaprojects," International Journal of Forecasting, Elsevier, vol. 38(3), pages 1185-1196.
    11. Joseph Y. J. Chow & Amelia C. Regan, 2011. "Real Option Pricing of Network Design Investments," Transportation Science, INFORMS, vol. 45(1), pages 50-63, February.
    12. Proost, S. & Van der Loo, S. & de Palma, Andre & Lindsey, Robin, 2005. "A cost-benefit analysis of tunnel investment and tolling alternatives in Antwerp," European Transport \ Trasporti Europei, ISTIEE, Institute for the Study of Transport within the European Economic Integration, issue 31, pages 83-100.
    13. Al-Noor Abdullah & Sanzidur Rahman, 2021. "Social Impacts of a Mega-Dam Project as Perceived by Local, Resettled and Displaced Communities: A Case Study of Merowe Dam, Sudan," Economies, MDPI, vol. 9(4), pages 1-32, September.
    14. Fildes, Robert & Goodwin, Paul & Lawrence, Michael & Nikolopoulos, Konstantinos, 2009. "Effective forecasting and judgmental adjustments: an empirical evaluation and strategies for improvement in supply-chain planning," International Journal of Forecasting, Elsevier, vol. 25(1), pages 3-23.
    15. Morteza Davari & Erik Demeulemeester, 2019. "The proactive and reactive resource-constrained project scheduling problem," Journal of Scheduling, Springer, vol. 22(2), pages 211-237, April.
    16. Konstantina Gkritza & Kumares Sinha & Samuel Labi & Fred Mannering, 2008. "Influence of highway construction projects on economic development: an empirical assessment," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 42(3), pages 545-563, September.
    17. Müllner, Jakob, 2016. "From uncertainty to risk—A risk management framework for market entry," Journal of World Business, Elsevier, vol. 51(5), pages 800-814.
    18. Brinkman, Anthony P., 2003. "The Ethical Challenges and Professional Responses of Travel Demand Forecasters," Institute of Transportation Studies, Research Reports, Working Papers, Proceedings qt9c3330tt, Institute of Transportation Studies, UC Berkeley.
    19. Dahl, Roy Endré & Lorentzen, Sindre & Oglend, Atle & Osmundsen, Petter, 2017. "Pro-cyclical petroleum investments and cost overruns in Norway," Energy Policy, Elsevier, vol. 100(C), pages 68-78.
    20. Olav Torp & Ole Jonny Klakegg, 2016. "Challenges in Cost Estimation under Uncertainty—A Case Study of the Decommissioning of Barsebäck Nuclear Power Plant," Administrative Sciences, MDPI, vol. 6(4), pages 1-21, October.

    More about this item

    Keywords

    Real option analysis; Fractional Brownian motion; Monte Carlo simulation;
    All these keywords.

    JEL classification:

    • H54 - Public Economics - - National Government Expenditures and Related Policies - - - Infrastructures
    • R42 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Government and Private Investment Analysis; Road Maintenance; Transportation Planning

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hhs:ctswps:2012_017. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: CTS (email available below). General contact details of provider: http://www.cts.kth.se/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.