An optimal multiple stopping approach to infrastructure investment decisions

Abstract

a b s t r a c tThe energy and material processing industries are traditionally characterized by very large-scale physical capital that is custom-built with long lead times and long lifetimes. However, recent technological advancement in low-cost automation has made possible the parallel operation of large numbers of small-scale and modular production units. Amenable to mass-production, these units can be more rapidly deployed but they are also likely to have a much quicker turnover. Such a paradigm shift motivates the analysis of the combined effect of lead time and lifetime on infrastructure investment decisions. In order to value the underlying real option, we introduce an optimal multiple stopping approach that accounts for operational flexibility, delay induced by lead time, and multiple (finite/ infinite) future investment opportunities. We provide an analytical characterization of the firm's value function and optimal stopping rule. This leads us to develop an iterative numerical scheme, and examine how the investment decisions depend on lead time and lifetime, as well as other parameters. Furthermore, our model can be used to analyze the critical investment cost that makes small-scale (short lead time, short lifetime) alternatives competitive with traditional large-scale infrastructure.

Optimal expansion timing decisions in multi-stage PPP projects involving dedicated asset and government subsidies

“…The aim is to find the optimal expansion times that could maximize the project value, that is, the total revenues of multi-stage investments. It is an optimal multiple stopping time problem when attempting to optimize the investment opportunities for multi-state projects [4]. The project value and optimal expansion timing of the N stage investments can be expressed as the following optimal multiple stopping time problem 7:…”

Improving the Quality of Investment Design in Industrial Construction

“…215 применении методов управления проектами и принципов инвестиционного проектирования, начиная с самых ранних стадий жизненного цикла проекта [12]. Основу концепции управления проектами составляет взгляд на проект как на управлен-ческое изменение исходного состояния любой системы, связанное с затратами времени и средств Управление проектами включает функции планирования, организации, мониторинга и контроля по всем аспектам проекта для достижения его внешних и внутренних целей [13][14][15][16].…”

“…Стратегической задачей строительной отрасли является восстановление инвестиционно-го потенциала, повышение эффективности инвестиционной политики, масштабов инвестици-онной деятельности на основе расширения критериев отбора и улучшения качественных пара-метров инвестиционных проектов, совершенствования отраслевой и территориальной структу-ры инвестиций, мобилизации внутренних источников и привлечения внешних инвестиций, ис-пользования прогрессивных форм организации инвестиционного проектирования [11][12].…”

Optimal Multiple Stopping with Negative Discount Rate and Random Refraction Times under Lévy Models

“…Examples include multiple-exercise options [8,22], portfolios of employee stock options [11,16,19], sequential infrastructure investments [10,13], as well as reload and shout options [14]. Since some of these applications also involve a sequence of perpetual call options, our analysis is directly applicable and provides an extension to discounting with a negative rate.…”