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
      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
    • Files: UTC, RiP, USDOT, STATEDOT
    • Created Date: Jan 3 2013 2:40PM