Abstract
There are a great amount of brownfield in Chinese mining cities. In order to promote mining cities sustainable development, it is necessary to redevelop brownfield. There is a great deal of uncertainty in the process of brownfield redevelopment owing to the influences of pollution. Normal fuzzy numbers were used to describe the fuzziness of the expected DCF (discounted cash flow) value of brownfield redevelopment projects. In view of experts’ preferences, the weight of fuzzed estimation intervals of the expected DCF value was determined by means of the lattice closeness degree to find the volatility of the expected DCF value. Combining the results with the B-S (Black-Scholes) real option model, we built a fuzzy real option model which could be applied to the brownfield redevelopment projects. The empirical results showed that the valuation results of the fuzzy real option model, considering the experts’ risk preferences, were relatively objective and accurate.
Highlights
In the last thirty years, China has achieved rapid economic growth
This paper describes the expected DCF value in a real option model by means of the normal fuzzy numbers, gets the volatility of the DCF value, combines with the B-S real option model, develops a fuzzy real option model, and applies the model to an industrial wasteland redevelopment project in Huainan City, China
There are two reasons for the usage of normal fuzzy numbers: one is that normal fuzzy numbers can reflect the fuzziness of the expected DCF value in brownfield redevelopment projects, and its cut-sets embody experts’ risk preferences; the other one is that it is more suitable for assumed conditions of the Black-Scholes option [29]
Summary
In the last thirty years, China has achieved rapid economic growth. China’s high-speed economic growth is largely dependent on massive energy consumption [1]. Comprehensive Environmental Response, Compensation, and Liability Act, ( called CERCLA) defines “brownfield” as lands which are previously used for industrial purposes or some commercial uses and may be contaminated by low concentrations of hazardous waste or pollution [7] Those contaminated lands, after remediation, still have considerable development value [8,9]. Some foreign scholars evaluated the value of brownfield redevelopment using real option approach. The real option method took the flexibility of the project into account, so it was much better than such traditional methods as the DCF (discounted cash flow) method, and can evaluate the value of brownfield redevelopment projects more accurately. Yao Shangli described the expected DCF value of the real option model by means of triangular fuzzy numbers, conducted empirical research on a brownfield redevelopment case, and contrasted results with those gotten from the traditional DCF method. We apply a fuzzy real option model on redevelopment projects
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