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Flexible lease contracts in the fleet replacement problem with alternative fuel vehicles: A real-options approach

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  • Ansaripoor, Amir H.
  • Oliveira, Fernando S.

Abstract

We study the use of flexible lease contacts in the fleet portfolio management problem of a firm that aims to minimize its cost and risk (Recursive Expected Conditional Value at Risk), simultaneously, in a stochastic multi-period setting by deciding which technologies to use in its fleet. We propose a model using real options (return and swap) to model contract flexibility and to account for different uncertainties (CO2 prices, fuel prices, mileage covered by a vehicle, fuel consumption, and technological). We analyse how fuel price uncertainty and technological progress influence the value of the options. We validate the results using a real-world case study conducted in the UK.

Suggested Citation

  • Ansaripoor, Amir H. & Oliveira, Fernando S., 2018. "Flexible lease contracts in the fleet replacement problem with alternative fuel vehicles: A real-options approach," European Journal of Operational Research, Elsevier, vol. 266(1), pages 316-327.
    • Handle: RePEc:eee:ejores:v:266:y:2018:i:1:p:316-327
    DOI: 10.1016/j.ejor.2017.09.010
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    2. Gao, Yongling & Leng, Mingming & Zhang, Yaping & Liang, Liping, 2022. "Incentivizing the adoption of electric vehicles in city logistics: Pricing, driving range, and usage decisions under time window policies," International Journal of Production Economics, Elsevier, vol. 245(C).
    3. Paolo Falbo & Giorgio Ferrari & Giorgio Rizzini & Maren Diane Schmeck, 2021. "Optimal switch from a fossil-fueled to an electric vehicle," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 44(2), pages 1147-1178, December.
    4. Paolo Falbo & Giorgio Ferrari & Giorgio Rizzini & Maren Diane Schmeck, 2020. "Optimal switch from a fossil-fueled to an electric vehicle," Papers 2012.09493, arXiv.org.
    5. Oliveira, Fernando S. & Ruiz Mora, Carlos, 2023. "Risk management in solar-based power plants with storage: a comparative study," DES - Working Papers. Statistics and Econometrics. WS 38369, Universidad Carlos III de Madrid. Departamento de Estadística.
    6. Chuan-Chuan Ko & Chien-Yu Liu & Zan-Yu Chen & Jing Zhou, 2019. "Sustainable Development Economic Strategy Model for Reducing Carbon Emission by Using Real Options Approach," Sustainability, MDPI, vol. 11(19), pages 1-14, October.
    7. Raquel J. Fonseca & Luísa Cunha, 2023. "Real options in health insurance decisions: the Portuguese ADSE system," SN Business & Economics, Springer, vol. 3(6), pages 1-17, June.
    8. Nadarajah, Selvaprabu & Secomandi, Nicola, 2023. "A review of the operations literature on real options in energy," European Journal of Operational Research, Elsevier, vol. 309(2), pages 469-487.
    9. Shields, Brett A. & Seif, Javad & Yu, Andrew Junfang, 2019. "Parallel machine replacement with shipping decisions," International Journal of Production Economics, Elsevier, vol. 218(C), pages 62-71.

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