A Compound Real Option Approach for Determining the Optimal Investment Path for RPV-Storage Systems

2022 ◽  
Vol 43 (3) ◽  
Author(s):  
Benjamin Hassi ◽  
Tomas Reyes ◽  
Enzo Sauma
Keyword(s):  
Real Option ◽  
Storage Systems ◽  
Optimal Investment ◽  
Real Option Approach

A jump-diffusion real option approach for hotel investment under uncertain lodging demand

Kybernetes ◽  
2016 ◽  
Vol 45 (10) ◽  
pp. 1604-1616 ◽  
Author(s):  
Rufei Ma ◽  
Pengxiang Zhai
Keyword(s):  
Real Option ◽  
Economic Recession ◽  
Optimal Investment ◽  
Jump Diffusion ◽  
Discounted Cash Flow ◽  
Content Type ◽  
Investment Timing ◽  
Real Option Approach ◽  
Hotel Investment ◽  
The Impact

Purpose One of the important characteristics of the hotel business is uncertainty of lodging demand, which can jeopardize hotel operation and ultimately even threaten a hotel’s survival during an economic recession. The purpose of this paper is to propose an approach to determine optimal hotel investment issues under uncertain lodging demand. Design/methodology/approach Uncertainty of lodging demand is classified into two types: the impact of unexpected economic recession and the temporary imbalance between supply of hotel rooms and lodging demand. A jump-diffusion real option approach is proposed to analyze how these two types affect optimal investment timing and the potential value of new hotel projects. The case of hotel investment in Macao is used to illustrate the jump-diffusion real option approach. Findings The results of numerical analysis show that the uncertainty induced by temporary imbalance between supply of hotel rooms and lodging demand increases the threshold of investment and hotel value, while the uncertainty induced by unexpected economic recession has ambiguous effects on the value and optimal investment timing of new hotel projects. Practical implications The jump-diffusion real option approach increases managerial flexibility for managers when making investment decisions on new hotel projects, allowing greater value to be generated than is possible with the conventional discounted cash flow method. Originality/value The approach separates the impact of unexpected economic recession on lodging demand from that of “normal” fluctuations in lodging demand, and it considers the impact of both types of uncertainty on hotel investment.

scholarly journals Optimal Investment Timing and Scale Choice of Overseas Oil Projects: A Real Option Approach

Energies ◽  
2018 ◽  
Vol 11 (11) ◽  
pp. 2954 ◽  
Author(s):  
Jia-Yue Huang ◽  
Yun-Fei Cao ◽  
Hui-Ling Zhou ◽  
Hong Cao ◽  
Bao-Jun Tang ◽  
...  
Keyword(s):  
Real Option ◽  
Oil Prices ◽  
Optimal Investment ◽  
Oil Price ◽  
Uncertain Environments ◽  
Investment Timing ◽  
Oil Companies ◽  
Geological Conditions ◽  
Real Option Approach ◽  
The Impact

This article presents a real option model for helping investors to determine the optimal investment timing and scale of overseas oil projects. The model is suitable for the highly uncertain environments in which many oil companies operate, where they have to suspend upstream investment, stop new oilfield construction, and wait for proper oil prices in order to avoid losses. Considering the uncertainty of oil prices and exchange rates, the results of analytical solutions presented in this paper show the critical oil price that can be seen as the investment threshold for triggering oilfield development as well as the optimal recoverable factor for every oil price level to indicate the optimal investment scale. Results of the case project show the critical oil price, which is 82.32 US dollar per barrel, and the selection of optimal investment scale. The article also demonstrates the impact of investment scale on investment timing in overseas oil projects. The policy implication from the case project is that investment decisions are finitely impacted by geological conditions. Besides, the existence of tax holiday directly contributes to a lower investment threshold. In addition, reducing unit operation cost can obviously enlarge optimal investment scale and initiate oil projects in a relatively low level of investment threshold.

Price and subsidy under uncertainty: Real-option approach to optimal investment decisions on energy storage with solar PV

2021 ◽  
pp. 0958305X2199229
Author(s):  
Jingyu Qu ◽  
Wooyoung Jeon
Keyword(s):  
Renewable Energy ◽  
Energy Storage ◽  
Real Option ◽  
Financial Burden ◽  
Investment Decisions ◽  
Optimal Investment ◽  
Investment Incentives ◽  
Solar Pv ◽  
Increased Risk ◽  
Trigger Price

Renewable generation sources still have not achieved economic validity in many countries including Korea, and require subsidies to support the transition to a low-carbon economy. An initial Feed-In Tariff (FIT) was adopted to support the deployment of renewable energy in Korea until 2011 and then was switched to the Renewable Portfolio Standard (RPS) to implement more market-oriented mechanisms. However, high volatilities in electricity prices and subsidies under the RPS scheme have weakened investment incentives. In this study we estimate how the multiple price volatilities under the RPS scheme affect the optimal investment decisions of energy storage projects, whose importance is increasing rapidly because they can mitigate the variability and uncertainty of solar and wind generation in the power system. We applied mathematical analysis based on real-option methods to estimate the optimal trigger price for investment in energy-storage projects with and without multiple price volatilities. We found that the optimal trigger price of subsidy called the Renewable Energy Certificate (REC) under multiple price volatilities is 10.5% higher than that under no price volatilities. If the volatility of the REC price gets doubled, the project requires a 26.6% higher optimal investment price to justify the investment against the increased risk. In the end, we propose an auction scheme that has the advantage of both RPS and FIT in order to minimize the financial burden of the subsidy program by eliminating subsidy volatility and find the minimum willingness-to-accept price for investors.

Reserve estimation of an open pit mine under price uncertainty by real option approach

2009 ◽  
Vol 19 (6) ◽  
pp. 709-717 ◽  
Author(s):  
Afshin Dehkharghani AKBARI ◽  
Morteza OSANLOO ◽  
Mohsen Akbarpour SHIRAZI
Keyword(s):  
Real Option ◽  
Open Pit Mine ◽  
Open Pit ◽  
Price Uncertainty ◽  
Reserve Estimation ◽  
Real Option Approach
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