Browsing by Author "Pi, Chia-Chi"

Now showing 1 - 2 of 2

Competition, Dedicated Assets, and Technological Obsolescence in Multistage Infrastructure Investments: A Sequential Compound Option Valuation
(2011-02-01)
Huang, Yu-Lin
;
Pi, Chia-Chi
;
土木工程學系
;
Department of Civil Engineering
Multistage investments are common in area-wide developments of privatized telecommunication networks and other complex infrastructure systems. They represent an incremental strategy that maintains flexibility in managing market risks, funding needs, and resource constraints in geographical expansions. Though compound options can be used to valuate multistage investments, their valuation is complex when the project in question requires upfront and interim investments in dedicated assets for future expansions. The problem becomes more complex when infrastructure markets are competitive and the investment in question is prone to rapid technological progress, which quickly makes the currently best in-use technology obsolete. This paper develops a European sequential compound call option pricing model to valuate multistage investments and analyze how competition, dedicated assets, and technological obsolescence influence the value of flexibility in this incremental strategy.
Real-Option Valuation of Build- Operate-Transfer Infrastructure Projects under Performance Bonding
(2014-05-01)
Huang, Yu-Lin
;
Pi, Chia-Chi
;
土木工程學系
;
Department of Civil Engineering
This study assesses the effect of performance bonding on the valuation of a build-operate-transfer (BOT) project by extending the classical Black-Scholes-Merton (BSM) call option model. As common features in BOT contracts, a performance bond is a penalty imposed on concessionaires who exercise contractual rights to terminate participation in a project. In the real-option context, termination rights grant concessionaires the flexibility in managing market uncertainties that can increase the valuation of an infrastructure project, but the penalty impairs this flexibility and reduces valuations. A case study numerically illustrates the BSM model and indicates that performance bonding can destroy the flexibility and project valuations inherent in termination rights even when the penalty is moderate. Balancing performance bonds and termination rights is necessary because both are important in establishing and maintaining long-term contractual relationships in privatized BOT infrastructure projects.