Working papers in Transport Economics
The impact of stochastic properties of traffic demand on real option value in road projects
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.
Keywords: Real option analysis; Fractional Brownian motion; Monte Carlo simulation; (follow links to similar papers)
JEL-Codes: H54; R42; (follow links to similar papers)
33 pages, June 20, 2012
Real option analysis; Fractional Brownian motion; Monte Carlo simulation
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