IDEAS home Printed from https://ideas.repec.org/a/taf/conmgt/v37y2019i3p121-138.html
   My bibliography  Save this article

Minimum revenue guarantees valuation in PPP projects under a mean reverting process

Author

Listed:
  • Carlos Andrés Zapata Quimbayo
  • Carlos Armando Mejía Vega
  • Naielly Lopes Marques

Abstract

Minimum revenue guarantees, where the government assumes a portion of the traffic risk to guarantee a minimum level of revenue and profitability to the investors, is a standard risk mitigation mechanism for Public-Private Partnership contracts. Typically, valuation models for these guarantees assume that traffic volume follows a geometric Brownian motion under the Real Options Approach. However, this is often done without testing whether this assumption is reasonable or not. In this article, statistical tests are applied to check the validity of this assumption and show how toll road traffic can be modelled under alternate models, such as Mean Reverting processes, if the geometric Brownian motion assumption is rejected. In that sense, this approach is applied to the case of a toll road concession in Colombia where a Mean Reverting process is used to model the traffic. Finally, it is showed that this model is a valid tool for defining the fair value of the minimum amount of revenue secured by the government.

Suggested Citation

  • Carlos Andrés Zapata Quimbayo & Carlos Armando Mejía Vega & Naielly Lopes Marques, 2019. "Minimum revenue guarantees valuation in PPP projects under a mean reverting process," Construction Management and Economics, Taylor & Francis Journals, vol. 37(3), pages 121-138, March.
    • Handle: RePEc:taf:conmgt:v:37:y:2019:i:3:p:121-138
    DOI: 10.1080/01446193.2018.1500024
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/01446193.2018.1500024
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/01446193.2018.1500024?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Carlos Andrés Zapata Quimbayo, 2020. "OPCIONES REALES Una guía teórico-práctica para la valoración de inversiones bajo incertidumbre mediante modelos en tiempo discreto y simulación de Monte Carlo," Books, Universidad Externado de Colombia, Facultad de Finanzas, Gobierno y Relaciones Internacionales, number 138, September.
    2. Adkins, Roger & Paxson, Dean & Pereira, Paulo J. & Rodrigues, Artur, 2019. "Investment decisions with finite-lived collars," Journal of Economic Dynamics and Control, Elsevier, vol. 103(C), pages 185-204.

    More about this item

    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:taf:conmgt:v:37:y:2019:i:3:p:121-138. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RCME20 .

    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.