Real option valuation of power transmission investments by stochastic simulation

Autores
Pringles, Rolando Marcelo; Olsina, Fernando Gabriel; Garces, Francisco Felipe
Año de publicación
2015
Idioma
inglés
Tipo de recurso
artículo
Estado
versión publicada
Descripción
Network expansions in power markets usually lead to investment decisions subject to substantial irreversibility and uncertainty. Hence, investors need valuing the flexibility to change decisions as uncertainty unfolds progressively. Real option analysis is an advanced valuation technique that enables planners to take advantage of market opportunities while preventing or mitigating losses if future conditions evolve unfavorably. In the past, many approaches for valuing real options have been developed. However, applying these methods to value transmission projects is often inappropriate as revenue cash flows are path-dependent and affected by a myriad of uncertain variables. In this work, a valuation technique based on stochastic simulation and recursive dynamic programming, called Least-Square Monte Carlo, is applied to properly value the deferral option in a transmission investment. The effect of option´s maturity, the initial outlay and the capital cost upon the value of the postponement option is investigated. Finally, sensitivity analysis determines optimal decision regions to execute, postpone or reject the investment projects.
Fil: Pringles, Rolando Marcelo. Consejo Nacional de Investigaciones Cientificas y Tecnicas. Centro Cientifico Tecnologico San Juan. Instituto de Energia Electrica; Argentina
Fil: Olsina, Fernando Gabriel. Consejo Nacional de Investigaciones Cientificas y Tecnicas. Ctro Cientifico Tecnologico Conicet - San Juan. Instituto de Energia Electrica; Argentina
Fil: Garces, Francisco Felipe. Consejo Nacional de Investigaciones Cientificas y Tecnicas. Centro Cientifico Tecnologico San Juan. Instituto de Energia Electrica; Argentina
Materia
FLEXIBILITY
INVESTMENTS
MONTE CARLO
POWER NETWORK
REAL OPTIONS
UNCERTAINTY
Nivel de accesibilidad
acceso abierto
Condiciones de uso
https://creativecommons.org/licenses/by-nc-nd/2.5/ar/
Repositorio
CONICET Digital (CONICET)
Institución
Consejo Nacional de Investigaciones Científicas y Técnicas
OAI Identificador
oai:ri.conicet.gov.ar:11336/5250
Acceder
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network_name_str CONICET Digital (CONICET)
spelling Real option valuation of power transmission investments by stochastic simulationPringles, Rolando MarceloOlsina, Fernando GabrielGarces, Francisco FelipeFLEXIBILITYINVESTMENTSMONTE CARLOPOWER NETWORKREAL OPTIONSUNCERTAINTYhttps://purl.org/becyt/ford/5.2https://purl.org/becyt/ford/5Network expansions in power markets usually lead to investment decisions subject to substantial irreversibility and uncertainty. Hence, investors need valuing the flexibility to change decisions as uncertainty unfolds progressively. Real option analysis is an advanced valuation technique that enables planners to take advantage of market opportunities while preventing or mitigating losses if future conditions evolve unfavorably. In the past, many approaches for valuing real options have been developed. However, applying these methods to value transmission projects is often inappropriate as revenue cash flows are path-dependent and affected by a myriad of uncertain variables. In this work, a valuation technique based on stochastic simulation and recursive dynamic programming, called Least-Square Monte Carlo, is applied to properly value the deferral option in a transmission investment. The effect of option´s maturity, the initial outlay and the capital cost upon the value of the postponement option is investigated. Finally, sensitivity analysis determines optimal decision regions to execute, postpone or reject the investment projects.Fil: Pringles, Rolando Marcelo. Consejo Nacional de Investigaciones Cientificas y Tecnicas. Centro Cientifico Tecnologico San Juan. Instituto de Energia Electrica; ArgentinaFil: Olsina, Fernando Gabriel. Consejo Nacional de Investigaciones Cientificas y Tecnicas. Ctro Cientifico Tecnologico Conicet - San Juan. Instituto de Energia Electrica; ArgentinaFil: Garces, Francisco Felipe. Consejo Nacional de Investigaciones Cientificas y Tecnicas. Centro Cientifico Tecnologico San Juan. Instituto de Energia Electrica; ArgentinaElsevier2015-01info:eu-repo/semantics/articleinfo:eu-repo/semantics/publishedVersionhttp://purl.org/coar/resource_type/c_6501info:ar-repo/semantics/articuloapplication/pdfapplication/pdfapplication/pdfapplication/pdfhttp://hdl.handle.net/11336/5250Pringles, Rolando Marcelo; Olsina, Fernando Gabriel; Garces, Francisco Felipe; Real option valuation of power transmission investments by stochastic simulation; Elsevier; Energy Economics; 47; 1-2015; 215-2260140-9883enginfo:eu-repo/semantics/altIdentifier/url/http://www.sciencedirect.com/science/article/pii/S0140988314002965info:eu-repo/semantics/altIdentifier/doi/10.1016/j.eneco.2014.11.011info:eu-repo/semantics/openAccesshttps://creativecommons.org/licenses/by-nc-nd/2.5/ar/reponame:CONICET Digital (CONICET)instname:Consejo Nacional de Investigaciones Científicas y Técnicas2025-09-29T09:37:20Zoai:ri.conicet.gov.ar:11336/5250instacron:CONICETInstitucionalhttp://ri.conicet.gov.ar/Organismo científico-tecnológicoNo correspondehttp://ri.conicet.gov.ar/oai/requestdasensio@conicet.gov.ar; lcarlino@conicet.gov.arArgentinaNo correspondeNo correspondeNo correspondeopendoar:34982025-09-29 09:37:20.295CONICET Digital (CONICET) - Consejo Nacional de Investigaciones Científicas y Técnicasfalse
dc.title.none.fl_str_mv Real option valuation of power transmission investments by stochastic simulation
title Real option valuation of power transmission investments by stochastic simulation
spellingShingle Real option valuation of power transmission investments by stochastic simulation
Pringles, Rolando Marcelo
FLEXIBILITY
INVESTMENTS
MONTE CARLO
POWER NETWORK
REAL OPTIONS
UNCERTAINTY
title_short Real option valuation of power transmission investments by stochastic simulation
title_full Real option valuation of power transmission investments by stochastic simulation
title_fullStr Real option valuation of power transmission investments by stochastic simulation
title_full_unstemmed Real option valuation of power transmission investments by stochastic simulation
title_sort Real option valuation of power transmission investments by stochastic simulation
dc.creator.none.fl_str_mv Pringles, Rolando Marcelo
Olsina, Fernando Gabriel
Garces, Francisco Felipe
author Pringles, Rolando Marcelo
author_facet Pringles, Rolando Marcelo
Olsina, Fernando Gabriel
Garces, Francisco Felipe
author_role author
author2 Olsina, Fernando Gabriel
Garces, Francisco Felipe
author2_role author
author
dc.subject.none.fl_str_mv FLEXIBILITY
INVESTMENTS
MONTE CARLO
POWER NETWORK
REAL OPTIONS
UNCERTAINTY
topic FLEXIBILITY
INVESTMENTS
MONTE CARLO
POWER NETWORK
REAL OPTIONS
UNCERTAINTY
purl_subject.fl_str_mv https://purl.org/becyt/ford/5.2
https://purl.org/becyt/ford/5
dc.description.none.fl_txt_mv Network expansions in power markets usually lead to investment decisions subject to substantial irreversibility and uncertainty. Hence, investors need valuing the flexibility to change decisions as uncertainty unfolds progressively. Real option analysis is an advanced valuation technique that enables planners to take advantage of market opportunities while preventing or mitigating losses if future conditions evolve unfavorably. In the past, many approaches for valuing real options have been developed. However, applying these methods to value transmission projects is often inappropriate as revenue cash flows are path-dependent and affected by a myriad of uncertain variables. In this work, a valuation technique based on stochastic simulation and recursive dynamic programming, called Least-Square Monte Carlo, is applied to properly value the deferral option in a transmission investment. The effect of option´s maturity, the initial outlay and the capital cost upon the value of the postponement option is investigated. Finally, sensitivity analysis determines optimal decision regions to execute, postpone or reject the investment projects.
Fil: Pringles, Rolando Marcelo. Consejo Nacional de Investigaciones Cientificas y Tecnicas. Centro Cientifico Tecnologico San Juan. Instituto de Energia Electrica; Argentina
Fil: Olsina, Fernando Gabriel. Consejo Nacional de Investigaciones Cientificas y Tecnicas. Ctro Cientifico Tecnologico Conicet - San Juan. Instituto de Energia Electrica; Argentina
Fil: Garces, Francisco Felipe. Consejo Nacional de Investigaciones Cientificas y Tecnicas. Centro Cientifico Tecnologico San Juan. Instituto de Energia Electrica; Argentina
description Network expansions in power markets usually lead to investment decisions subject to substantial irreversibility and uncertainty. Hence, investors need valuing the flexibility to change decisions as uncertainty unfolds progressively. Real option analysis is an advanced valuation technique that enables planners to take advantage of market opportunities while preventing or mitigating losses if future conditions evolve unfavorably. In the past, many approaches for valuing real options have been developed. However, applying these methods to value transmission projects is often inappropriate as revenue cash flows are path-dependent and affected by a myriad of uncertain variables. In this work, a valuation technique based on stochastic simulation and recursive dynamic programming, called Least-Square Monte Carlo, is applied to properly value the deferral option in a transmission investment. The effect of option´s maturity, the initial outlay and the capital cost upon the value of the postponement option is investigated. Finally, sensitivity analysis determines optimal decision regions to execute, postpone or reject the investment projects.
publishDate 2015
dc.date.none.fl_str_mv 2015-01
dc.type.none.fl_str_mv info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
http://purl.org/coar/resource_type/c_6501
info:ar-repo/semantics/articulo
format article
status_str publishedVersion
dc.identifier.none.fl_str_mv http://hdl.handle.net/11336/5250
Pringles, Rolando Marcelo; Olsina, Fernando Gabriel; Garces, Francisco Felipe; Real option valuation of power transmission investments by stochastic simulation; Elsevier; Energy Economics; 47; 1-2015; 215-226
0140-9883
url http://hdl.handle.net/11336/5250
identifier_str_mv Pringles, Rolando Marcelo; Olsina, Fernando Gabriel; Garces, Francisco Felipe; Real option valuation of power transmission investments by stochastic simulation; Elsevier; Energy Economics; 47; 1-2015; 215-226
0140-9883
dc.language.none.fl_str_mv eng
language eng
dc.relation.none.fl_str_mv info:eu-repo/semantics/altIdentifier/url/http://www.sciencedirect.com/science/article/pii/S0140988314002965
info:eu-repo/semantics/altIdentifier/doi/10.1016/j.eneco.2014.11.011
dc.rights.none.fl_str_mv info:eu-repo/semantics/openAccess
https://creativecommons.org/licenses/by-nc-nd/2.5/ar/
eu_rights_str_mv openAccess
rights_invalid_str_mv https://creativecommons.org/licenses/by-nc-nd/2.5/ar/
dc.format.none.fl_str_mv application/pdf
application/pdf
application/pdf
application/pdf
dc.publisher.none.fl_str_mv Elsevier
publisher.none.fl_str_mv Elsevier
dc.source.none.fl_str_mv reponame:CONICET Digital (CONICET)
instname:Consejo Nacional de Investigaciones Científicas y Técnicas
reponame_str CONICET Digital (CONICET)
collection CONICET Digital (CONICET)
instname_str Consejo Nacional de Investigaciones Científicas y Técnicas
repository.name.fl_str_mv CONICET Digital (CONICET) - Consejo Nacional de Investigaciones Científicas y Técnicas
repository.mail.fl_str_mv dasensio@conicet.gov.ar; lcarlino@conicet.gov.ar
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score 13.069144

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