Real Options Method Research Articles

Storage capacity plan and transition of heterogeneous energy at regional strategic level: A financial derivative perspective

Energy storage plays a key role in harvesting energy among heterogeneous energy sources. To transform heterogeneous energy and plan storage capacity at the regional strategic level, this study simulates storage capacity settings for heterogeneous energy in a certain region (Jiangsu Province in China) from the perspective of investment portfolio. This study then implements adjustments between the generation side and storage side during operations under a hedging ideology. Lastly, this study uses thermal energy on the generation side as an example to apply the switching real option method in decision-making for transitioning from thermal energy to renewable energy during disposal. The conclusion indicates that, from a financial derivative perspective, planning of heterogeneous energy storage capacity proves to be more efficient than existing regional plans and decision-making for transformation achieves investment triggers with higher energy values. Thus, this study aids the power system in planning energy storage and managing heterogeneous energy more economically and comprehensively at the regional strategic level.

Using Real Options and Geometric Brownian Motion Methods to Evaluate Petroleum Projects in Indonesia

There are several methods for evaluating the value of a project. The most commonly used method is the Discounted Cash Flows (DCF) method which is more practical in its use. However, the DCF method still has several weaknesses, including not paying attention to the flexibility of the manager's decision-making when the project is carried out. The Real Options method enhances this by offering more flexible and varied models. This study uses Benninga's version of the binomial method to evaluate the value of petroleum projects with the characteristics of existing companies in Indonesia. In this study, oil prices are assumed to move following the Geometric Brownian Motion (GBM) model which is commonly used in modeling the movement of a fluctuating price. In addition, the author also modifies the binomial model by including expansion options, divestment options and a combination of both. The results of this study show that the more options that managers can choose in decision-making, the greater the opportunity for the company to optimize profits and minimize losses.

Patent Value Evaluation of Communication Enterprises Based on Real Option Method

Patents are an important asset for a company, especially for telecommunications companies. Evaluating the value of patent portfolios and analyzing the benefits brought by patents is of great significance to the development of communication enterprises with multiple patents. In this paper, the gray GM(1,1) model, random forest algorithm and Monte Carlo simulation are introduced into the B-S option pricing model of the real option method. The gray GM(1,1) model has unique utility for the analysis and modeling of short time series and few statistical data, and has the characteristics of high prediction accuracy and good effect. The random forest algorithm has great advantages in the calculation of revenue sharing rate, and Monte Carlo simulation can optimize volatility parameters. Therefore, the B-S model is used to analyze the 5G patent data of ZTE Co., Ltd. with access technology functions, which has certain operability and reference.

Forecasting Coal Price Using Static and Dynamic Stochastic Model as Based for Indonesia’s Mining Project Valuation with Real Option Method

Indonesia's coal mining company is not only a capital-incentive business that needs high investment at the start of the project but also a cost-incentive business that needs high operational costs along the project. The most important parameter needed to determine the project value is assuming uncertainty of coal price in the future. This condition forces mining entrepreneurs to forecast future coal prices with the assumption. One of the approaches is using the Stochastic Model to predict price fluctuation in the future. There are two models: the static model, which uses 50 percentiles of historical data, and the dynamic model, which uses Monte Carlo simulation with normal distribution as the fluctuation of the percentile. Using the Real Options Method, this approach could make a difference in project valuation. This difference could give insight into the mining project valuation.

Ukrainian Startup Ecosystem as a Driver of Economic and Strategic Resilience

The aim of the article is to comprehensively analyze the key adaptive transformations in the technological ecosystem of Ukraine during the wartime period as a driver of its economic and strategic development, in particular in the period of post-war reconstruction, as well as to generalize the most relevant approaches and features of evaluation of startups. Particular attention is paid to strategic startups in the field of defense, cybersecurity, deep learning algorithms, space and other advanced production technologies, in particular in the context of specific aspects that should be taken into account when assessing their value. The study uses general scientific methods and specific economic and statistical approaches, in particular methods of analysis and synthesis to classify approaches to evaluating startups, as well as descriptive statistics and graphical analysis to identify structural changes in the technological ecosystem of Ukraine. The carried out study showed that in recent years there has been a significant increase in the number and variety of startups specializing in strategic sectors of the economy. Their development is due to both the strategic needs of the State for means to increase defense capability and national security, and global technological trends, in particular in the field of artificial intelligence and cybersecurity. In addition, it is determined that for assessing the value of startups in strategic sectors of the economy, the most flexible and relevant are the method of real options, the method of testing hypotheses, and the approaches based on scenario analysis. The results of the presented study can be taken into account when improving traditional and new methods of evaluating startups and new companies, in particular in terms of taking into account their strategic value using premiums or other valuation techniques. Prospects for future research in this direction are to improve the existing methods for evaluating startups from strategic industries, taking into account the specifics of the sector and the high level of geopolitical and macroeconomic uncertainty.

ОБЕСПЕЧЕНИЕ КАЧЕСТВА ИНВЕСТИЦИОННЫХ ПРОЕКТОВ

The authors conduct a study of current trends in the field of ensuring the quality of investment projects, taking into account the identification of the main stage of the investment decision and its evaluation. This stage is intended to provide an answer about the feasibility of investing in the project as a whole. To implement this stage, there is a wide range of tools, including various methods for ensuring the quality of the solution, in particular, the net present value method, the internal rate of return method, the real options method, the modified internal rate of return method, and the return on investment ratio, as given in the article. Each method has advantages and disadvantages; the article also discusses examples of changes in Russian legislation in the field of project evaluation. The authors analyze practical experience in implementing investment decisions, provide the opinions of experts from among practitioners in the field of application, and analyze specific examples from the point of view of finding opportunities to ensure the quality of the implementation of an investment project.

The Evaluation Model of Economy and Application in the Secondary Development by Real Options Method

The secondary development is a deeper development after efficient development, more difficult to develop, higher technical risks and fluctuations in oil prices all increase uncertainty. Owing to comprehensive benefits and uncertainty, it’s essential to find a more flexibility in investment decision-making method instead of cash flow which may cause the deviations of investment decisions. Organic combining the evaluation model of capacity, risk analysis methods, Black—Scholes model, this article has established an option evaluation method of deliverability project which is fit for the secondary development, reflects comprehensive benefits and uncertainty. It has provided a more accurate method for investment decision on the secondary development evaluation under uncertainty.

Study on the Integration Path of “Photovoltaic + Rural Revitalization” under the Perspective of “Dual Carbon”

Abstract This study combines photovoltaic (PV) technology with rural revitalization, constructs a new long-term mechanism by using a BOT model, and applies fuzzy number processing to the model of the real option method to dig out the potential value of the project. Based on the field research of X county, the article comprehensively analyzes the PV power generation project in terms of economic and social benefits and its impact on poverty alleviation. The results show that the total benefit of X county can reach 3720.34 million yuan in 30 years, and the average annual benefit is about 124.011 million yuan. The full power generation capacity of the project is 4,987 MWh, and the total income from electricity sales reaches 471,985,000 yuan. The PV power project has contributed significantly to environmental protection, with reductions in carbon dust, carbon dioxide, sulfur dioxide, and nitrogen oxides of 12.12 billion tons, 44.61 billion tons, 13.77 billion tons, and 750 million tons, respectively. The study also found that villages with larger administrative territory and suitable topographic conditions are more ideal for establishing large-scale PV ground power plants to help alleviate poverty. Meanwhile, villages with good grid quality are more efficient in reducing poverty when implementing PV poverty alleviation programs. This study provides an innovative perspective for village revitalization strategies and demonstrates the great potential of PV technology in promoting village economic development and environmental protection.

Optimal investment decision for photovoltaic projects in China: a real options method

Optimal investment decision for photovoltaic projects in China: a real options method

The Effect Of Company Size, Profitability, Economic Growth Rate, Market Traction And Competitive Advantage On Startup Valuation In Logistics Aggregators

The large number of startups in Indonesia is supported by an increase in internet user penetration which reaches 64.8% of the Indonesian population or 171.17 million users (APJII 2019). The potential of Indonesia's creative economy and startups is very large which is supported by abundant natural resources, local cultural diversity spread throughout the archipelago, and diversity of human resources. The objectives of this study are as follow Describe the financial performance of start-ups in logistics aggregators at PT Linknau. Analyzing company size, profitability, economic growth rate, market traction and competitive advantage against start-up valuation in logistics aggregators (Case Study at PT Linknau). The data used in this study are primary data and secondary data. Primary data is in the form of interviews conducted in depth interviews with the CEO of PT Linknau and secondary data in the form of financial statements of start-up companies PT Linknau from 2019-2022. The results show that the valuation of the Real Option Method (ROM) from 2019 to 2023 is seen increasing. It can be seen that the highest value of ROM valuation in 2023 is right in executing investments and finding the optimal value of PT Linknau itself.

Real options analysis for urban flood mitigation under environmental change

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.

Rethinking the evaluation of solar photovoltaic projects under YieldCo mode: A real option perspective

Many corporations invest in solar photovoltaic (PV) projects to mitigate climate change. However, lack of capital poses a great challenge to the development of the solar PV industry. YieldCos that are a financial tool to securitize assests for renewable energy corporations were introduced to alleviate the financial pressure, but their achievements are unable to meet the expected performance level. Therefore, a question araises: Can YieldCos promote the development of solar PV industry? To solve this issue, this paper utilized a real option method to investigate whether YieldCos can facilitate the deployment of solar PV projects and their impact on decision-making processes. Based on the solution obtained from the real option model, we explore the impacts of decisive factors on the defer option value, investment threshold and expected execution time. The joint impacts of the dividend ratio and other factors are also investigated. We conclude that YieldCos are suitable for solar PV projects, while a high dividend ratio will make investors postpone their investments. In addition, by using the technological level to represent the drift term of investment, we further discuss how decision-makers should react to the potential technological innovation. Moreover, we also discuss the impacts of potential declines in feed-in tariffs on investors’ behaviour. We conclude that YieldCos can promote the development of solar PV in China as it can urge investors to invest at an early stage. Related policy recommendations are also proposed.

Photovoltaic project investment based on the real options method: An analysis of the East China power grid region

Photovoltaic project investment based on the real options method: An analysis of the East China power grid region

МЕТОДОЛОГИЧЕСКИЕ ОСНОВЫ ОРГАНИЗАЦИИ ОЦЕНКИ ИННОВАЦИОННЫХ ПРОЕКТОВ НА ОСНОВЕ ПОСТРОЕНИЯ ЛОГИКО-СТРУКТУРНОЙ МАТРИЦЫ

The purpose is to develop methodological foundations for evaluating innovative projects based on the application of the “Due Diligence” standard and the real options method, followed by the construction of a logical-structural matrix. Research methodology: It is based on the "Due Diligence" standard used in the evaluation of innovative projects since the early 30s of the XX century. In its classical form, this approach is a complex analytical procedure aimed at determining the legality and investment attractiveness of a planned commercial transaction, merger, acquisition, investment, issue or other financial procedure in order to minimize possible risks and related financial losses and make a decision on investing capital. The object of the study is modern methods for evaluating innovative projects. The subject of the study is the peculiarities of organizing the evaluation of innovative projects in modern conditions for the implementation of an integrated approach to making managerial decisions regarding the introduction of innovations, comparative and systematic approaches, as well as general theoretical methods of analysis, synthesis, generalization, comparison. As a result, the authors carried out a comparative analysis of the main approaches to the evaluation of innovative projects, which made it possible to substantiate that the evaluation of an innovative project should be based on the real options method and the “Due Diligence” expert approach, followed by the construction of a logical-structural matrix. The advantage of this method is the possibility of a phased assessment of the project, taking into account various options for the combination of circumstances. This integrated approach to the evaluation of innovative projects allows us to consider not only the likelihood of various events, but also makes it possible to evaluate the effectiveness of the project, taking into account various options for getting out of the current situations. The integrated application of the real options method and the “Due Diligence” expert approach allows taking into account risks and reducing the level of influence of uncertainty on the assessment results, which determines the practical significance of the study.

THREE-STEP SEQUENTIAL COMPOUND REAL OPTIONS METHOD FOR ELECTRICITY CAPACITY EXPANSION

A three-step sequential compound real options (SCRO) method is developed and applied to the South African technology for fluidised bed combustion with carbon capture and storage (FBCwCCS). The objective of this paper is to address the plan’s implementation when electricity demand is uncertain. The SCRO results are compared with the net present value (NPV) approach. The data for both the SRCO and the NPV is extracted from the mixed integer two-stage stochastic programming results. Negative NPV results indicate that the investment for the FBCwCCS should be rejected. The SCRO results suggest that decision-makers can exercise the option to invest if the start-up costs are less than or equal to R130 million, or otherwise defer the FBCwCCS investment projects. The industry lags behind in implementing the real option models; the same is expected with the SCRO models.

Research on Data Asset Pricing based on Bargaining Model

Data, is difficult to be priced for its timeliness and non-physical characteristics. This paper innovatively brings the Real Option Method of intangible assets into the discussion to better pricing data assets. The conclusion is that, under the condition of perfect information, a seller can only be the price taker. And, trading platforms play an important role in restraining sellers’ high price premium behavior.

The effects of policy subsidy on the investment decisions of carbon capture and storage—A real‐options approach

AbstractCarbon capture and storage (CCS) plays an important role in promoting developing countries to reduce carbon emission and meet the requirement for carbon reduction under carbon neutral and carbon peak targets. To evaluate the incentive effect of subsidization mechanisms on CCS investment, the paper incorporates two incentives into the model, considers the effects of the carbon trading price, electricity price, and other uncertain factors on the investment behaviors for CCS projects under uncertainty and explores incentive intensity of two policies on investment based on the real option method. The results show that even in the case of full operating cost subsidies and double electricity price subsidies, the power plant still delays CCS investment due to the imperfection of carbon market. The most appropriate policies for supporting immediate investment in CCS project are identified in the paper by considering the critical carbon price and electricity price in different scenarios. Additionally, the findings show that it is more efficient for the electricity price subsidy than cost subsidy with same subsidy proportion under single policy condition, while the minimum subsidy amount required to invest immediately is 32.86 million CNY in the combination of the two policies. This provides environmental policymakers with valuable insights on promoting CCS deployment under the context of carbon reduction. © 2022 Society of Chemical Industry and John Wiley & Sons, Ltd.

실물옵션 기법을 이용한 문화예술회관의 사회적 경제성 분석

Culture & Arts centers have been dramatically increasing due to the governmental policies and increasing demands of using them for the recent years. However, there have been some problems from the central and local governments’ manipulations for achievements or patronization that they can’t play a role not fit to their original purposes. As reflecting the fact, the operating status by culture & arts centers are different, and it is expected that such institutes shall be built strictly based on the social economy in future. This study aims at presenting the analysis of social economy using real option method could be usefully utilized with considerations on irreversibility and uncertainty of investment on culture & arts centers, and convenience of investment. Therefore, the binomial option model of real option methods was applied for simulation on the culture & art center in Daejeon. As a result of the analysis, in the case of the culture & arts center, when considering its ‘operational expansion option’ at specific time, its economy would be highest with accomplishment of the economies of scale.

Low-Carbon Transition Paths of Coal Power in China’s Provinces under the Context of the Carbon Trading Scheme

The importance of coal power in maintaining the security of the national power supply and the stability of the grid is irreplaceable for China at present, as was reflected in the “power shortage” event of 2021. To achieve the goal of carbon neutrality, the low-carbon transition paths of coal power for each province were analyzed in the context of China’s emission trading scheme (ETS). The prospect and importance of coal power was preliminarily analyzed first. Following the “bottom-up” direction, the real option method was used to establish decision models for investing in carbon capture, utilization and storage equipment (CCUS) and eliminating high carbon-intensive units. Results showed that Inner Mongolia will first adopt CCUS in 2037 and the thresholds can be met in all provinces before 2050. However, the ETS will not lead to the elimination of coal power during the studied period. Combined with an evaluation of the development potential of coal power, four transition paths were distinguished for Chinese provinces. Considering that China’s ETS is in the developing stage, its full potential for stimulating the low-carbon transition of coal power was further discussed. On this basis, several policy implications were provided.

Carbon capture and storage investment strategy towards the dual carbon goals

This paper develops a real option model combined with the Monte Carlo simulation to analyze the impact of the “dual carbon goals” on the CCS investment timing in China. The trajectory of CO2 prices is predicted to follow a geometric Brownian motion with jump. The CO2 prices are predicted on the basis of three scenarios: high, medium, and low shocks, respectively. Furthermore, the real option method is adopted to derive the appropriate incentive schemes and corresponding target CO2 prices that sustain CCS operations to assist China’s dual carbon goals. Notably, portfolios of two government incentive policies are compared, including clean electricity tariff and carbon tax. The results show that building an efficient national carbon emissions trading scheme (ETS) is crucial to catalyzing the deployment of CCS technology, shortening the waiting time of CCS investment to 5.9 years at best. Government incentives could further bring the threshold CO2 prices down and the expected waiting time of CCS investment forward.