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Economic Evaluation Of A Renewal Project Of The Construction Civil Affairs Administrative Service System In Korea Using Real Options

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  • Seong-Yun Jeong

Abstract

This study evaluated the economic value of a renewal project of the Construction Civil Affairs Administrative Service System for Online processing of construction related permissions and licensing in Korea using real options. In this study, the volatility was calculated using the probability distribution of the change in the benefit from the renewal. The change in the economic value was verified through the flexibility of the decision-making such as of the options to defer, contract and expand, to eliminate the future uncertainty. We concluded that a renewal project has economic value even though the passive NPV had a negative(-) value because of the sum of the existing passive NPV and the option premium for the future's uncertainties associated with flexibilities.

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  • Seong-Yun Jeong, 2014. "Economic Evaluation Of A Renewal Project Of The Construction Civil Affairs Administrative Service System In Korea Using Real Options," Economy & Business Journal, International Scientific Publications, Bulgaria, vol. 8(1), pages 894-902.
    • Handle: RePEc:isp:journl:v:8:y:2014:i:1:p:894-902
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    References listed on IDEAS

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    1. Longstaff, Francis A & Schwartz, Eduardo S, 2001. "Valuing American Options by Simulation: A Simple Least-Squares Approach," The Review of Financial Studies, Society for Financial Studies, vol. 14(1), pages 113-147.
    2. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    3. Panayi, Sylvia & Trigeorgis, Lenos, 1998. "Multi-stage Real Options: The Cases of Information Technology Infrastructure and International Bank Expansion," The Quarterly Review of Economics and Finance, Elsevier, vol. 38(3, Part 2), pages 675-692.
    4. Longstaff, Francis A & Schwartz, Eduardo S, 2001. "Valuing American Options by Simulation: A Simple Least-Squares Approach," University of California at Los Angeles, Anderson Graduate School of Management qt43n1k4jb, Anderson Graduate School of Management, UCLA.
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    More about this item

    Keywords

    real options; information system renewal; construction permission and licensing system in korea;
    All these keywords.

    JEL classification:

    • A - General Economics and Teaching

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