scholarly journals Investing in Time-to-Build Projects With Uncertain Revenues and Costs: A Real Options Approach

2018 ◽  
Vol 65 (3) ◽  
pp. 448-459 ◽  
Author(s):  
Lauri Kauppinen ◽  
Afzal S. Siddiqui ◽  
Ahti Salo
Keyword(s):  
Real Options ◽  
Real Options Approach ◽  
Time To Build

scholarly journals Valuation of Interacting Time-to-Build and Growth Real Options in Infrastructure Investments

2016 ◽  
Vol 8 (12) ◽  
pp. 202 ◽  
Author(s):  
Olubanjo Michael Adetunji ◽  
Akintola Amos Owolabi
Keyword(s):  
Real Options ◽  
Real Option ◽  
Growth Options ◽  
Infrastructure Projects ◽  
Discounted Cash Flow ◽  
Real Options Approach ◽  
Growth Option ◽  
Time To Build ◽  
Infrastructure Project ◽  
Infrastructure Investments

This paper argues that real options approach presents a better valuation approach for valuing infrastructure investments when compared to traditional discounted cash flow approach. Managerial flexibilities, in various forms of real options, can be incorporated into infrastructure projects to expand the projects’ values. The paper identifies two key types of real options present in infrastructure investments as time-to-build and growth options and extends an earlier developed closed-form option valuation formula to value these options. The paper uses a numerical case of investment in railroad infrastructure project and shows that both types of real options, when embedded in infrastructure projects, add values to the projects. It however shows that the value of growth option is far more than the value of time-to-build option as growth options create opportunities for follow-on investments. It also shows that when the two options are present in an infrastructure investment, the time-to-build real option interacts with the growth option to reduce the latter’s value.

scholarly journals Market-based instruments for risk-averse farmers: rubber agroforest conservation in Jambi Province, Indonesia

2016 ◽  
Vol 22 (2) ◽  
pp. 133-155 ◽  
Author(s):  
Utkur Djanibekov ◽  
Grace B. Villamor
Keyword(s):  
Income Inequality ◽  
Risk Aversion ◽  
Real Options ◽  
Risk Averse ◽  
Variance Model ◽  
Income Uncertainty ◽  
Real Options Approach ◽  
Pigovian Taxes ◽  
Rubber Agroforest ◽  
Mean Variance

AbstractThis paper investigates the effectiveness of different market-based instruments (MBIs), such as eco-certification premiums, carbon payments, Pigovian taxes and their combination, to address the conversion of agroforests to monoculture systems and subsequent effects on incomes of risk-averse farmers under income uncertainty in Indonesia. For these, the authors develop a farm-level dynamic mean-variance model combined with a real options approach. Findings show that the conservation of agroforest is responsive to the risk-aversion level of farmers: the greater the level of risk aversion, the greater is the conserved area of agroforest. However, for all risk-averse farmers, additional incentives in the form of MBIs are still needed to prevent conversion of agroforest over the years, and only the combination of MBIs can achieve this target. Implementing fixed MBIs also contributes to stabilizing farmers’ incomes and reducing income risks. Consequently, the combined MBIs increase incomes and reduce income inequality between hardly and extremely risk-averse farmers.

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