Large Scale Real Options Models for Network Investment Planning and Operational Risk Hedging

This project will develop a real option model for investments made in a network as a method for addressing managerial flexibility in transportation planning. A continuous network investment deferment model is formulated with longitudinal stochastic OD flows. Each payoff is determined by the continuous network design problem. The model is a bilevel program with an upper level Bellman equation for dynamic programming and a lower level based on the continuous network design investment allocation and user-optimal route choice. Each OD demand flow evolves as an independent, discretized geometric Brownian motion. A heuristic approach based on Monte Carlo simulation and Iterative Optimization Assignment is considered, using a sampling strategy to overcome it inherent computational inefficiency. The option value is decomposed into the basic deferment option and a newly defined network option. Network exposure is expanded as an application to operational risk hedging to consider the impact of failed links on the expanded net present value. A solution for a Sioux Falls, SD network example with zero drift is compared to the stochastic demand scenarios in earlier literature as well as the standard exposure with the investment exposure.


    • English


    • Status: Active
    • Funding: $64622.70
    • Contract Numbers:


    • Sponsor Organizations:

      California Department of Transportation

      1227 O Street
      Sacramento, CA  United States  95843

      Department of Transportation

      1200 New Jersey Avenue, SE
      Washington, DC  United States  20590
    • Performing Organizations:

      University of California, Irvine

      Institute of Transportation Studies
      4000 Anteater Instruction and Research Building
      Irvine, CA  United States  92697

      University of California, Berkeley

      Transportation Center
      2614 Dwight Way, 2nd Floor
      Berkely, CA  United States  94720-1782
    • Principal Investigators:

      Regan, Amelia

    • Start Date: 20080801
    • Expected Completion Date: 0
    • Actual Completion Date: 20090731
    • Source Data: RiP Project 20341

    Subject/Index Terms

    Filing Info

    • Accession Number: 01464312
    • Record Type: Research project
    • Source Agency: University of California Transportation Center (UCTC)
    • Contract Numbers: SA6296
    • Created Date: Jan 3 2013 2:40PM