Expressway Investment Decision Making under Uncertainty

The expressway system expanses rapidly in China, and needs huge amount of investment to support the development of the system. During the decision-making, the investors require accurate quantitative analysis with proper model. The problem of expressway investment is embedded with numerous uncertainties due to changing in social, economic and environmental contexts. We can solve this problem with a real option approach which is popular in wide range of areas. This paper extends traditional cost-benefit analysis to the uncertain process, and presents the Black-Scholes formula for evaluating of the uncertainty. A solution algorithm which transforms the Black-Scholes equation into constant coefficient diffusion equation is developed. The extended cost-benefit analysis under uncertainty achieves investment decision-making optimality that is generally not well presented in traditional approaches for expressway planning.