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CTS - Centre for Transport Studies Stockholm (KTH and VTI)
CTS - Centre for Transport Studies Stockholm (KTH and VTI) CTS - Centre for Transport Studies Stockholm (KTH and VTI)
Working papers in Transport Economics

No 2012:17:
The impact of stochastic properties of traffic demand on real option value in road projects

Niclas Krüger ()

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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