Investment Decision Making for PPP Projects Based on the Black-Scholes Real Option Pricing Model

Author

Mao Yihua ; He Jia

Author_Institution

Dept. Archit. & Civil Eng., Zhejiang Univ., Hangzhou, China

fYear

2009

fDate

20-22 Sept. 2009

Firstpage

1

Lastpage

4

Abstract

The option properties of PPP projects investment are recognized by analyzing the investment characteristics of PPP projects from the perspective of a private sector. PPP project investment can be viewed as a European call option and thus a pricing model for option value of PPP projects is set up based on Black-Scholes option pricing model. Through empirical analysis of Beijing Metro Line 4 project, we conclude that the total value of a PPP project considering the option value is greater than that obtained by the traditional valuation tools (net present value). Therefore, the application of real option theory in the field of PPP project investment decision, which fully considers the flexibility of the private sector, allows the decision closer to the actual situation and helps to improve the accuracy of the decision making.

Keywords

construction industry; decision making; investment; pricing; Beijing Metro Line 4 project; Black-Scholes real option pricing model; European call option; investment decision making; public-private-partnership projects investment; Business; Character recognition; Civil engineering; Cost accounting; Decision making; Investments; Pricing; Project management; Uncertainty; Urban planning;

fLanguage

English

Publisher

ieee

Conference_Titel

Management and Service Science, 2009. MASS '09. International Conference on

Conference_Location

Wuhan

Print_ISBN

978-1-4244-4638-4

Electronic_ISBN

978-1-4244-4639-1

Type

conf

DOI

10.1109/ICMSS.2009.5304938

Filename

5304938