Niclas Krüger: VTI, Postal: Centrum för Transportstudier (CTS), Teknikringen 10, 100 44 Stockholm, Sweden
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.
33 pages, June 20, 2012
Note: Real option analysis; Fractional Brownian motion; Monte Carlo simulation
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