Real options analysis for urban flood mitigation under environmental change

Abstract

As urban flooding becomes more frequent and severe due to climate change and accelerated urbanization, effective urban flood control measures are needed to mitigate urban flooding under environmental change. However, few studies consider both climate change and land use change and formulate urban flood control plans for the uncertainty of climate change. This study proposes a real options method based on trinomial tree model to design urban flood control measures under environmental changes. Future rainfall was predicted based on the SDSM model. Land use changes for 2035 and 2050 were predicted using the CA-Markov model. Considering the uncertainty of future climate change, future urban flood control measures based on the real options method were developed, and to compare and analyze them with fixed investment method. The research results show that rainfall and construction land in the study area will increase in the future. The benefit of real options retrofit scheme is higher than the fixed investment retrofit scheme and climate change uncertainty has a greater impact on flood control planning decisions. The research framework proposed in this paper provides an effective basis for the formulation of urban flood control strategies and the design of flood control measures under environmental change.