A real options approach to satellite mission planning

Abstract

Abstract Satellite missions are one instrument of Earth observation targeted at obtaining information for improved decision making in sustainable development. But satellite missions are expensive undertakings involving large sunk costs and facing uncertain benefit streams. In the area of avoiding damages through, for example, better weather forecasts or better-informed rescue missions, the benefits are high, but also difficult to quantify. Using real options to optimize the timing of the launch of a satellite enables us not only to optimize the timing of the mission, but also to derive the value that such information conveys when it can be used to reduce the extent of the damage from disasters and their consequences: with low benefit expectations or large uncertainty, launching will be postponed, so ex ante Earth observation benefit assessment is an important task.