An Empirical Study for Real Options of Water Management in the Three Gorges Reservoir Area

Abstract

This paper investigates an empirical evaluation of water management on agricultural irrigation. To address this problem, a real options model was proposed. This model analysis the choice of investment in water savings. Also, the model discusses a linear complementary problem that can be transformed into the inequalities of parabolic variational. By using a power penalty method, we solved the parabolic variational inequalities. The results depicted that the nonlinear parabolic equations’ solution is converges to the rate of order O(h−k2). A numerical example is given at the end of the paper to demonstrate the theoretical analysis follows from the Three Gorges Reservoir Area.