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Assessing real options in urban surface water flood risk management under climate change

Author

Listed:
  • Haixing Liu

    (Dalian University of Technology)

  • Yuntao Wang

    (Dalian University of Technology
    University of Exeter)

  • Chi Zhang

    (Dalian University of Technology)

  • Albert S. Chen

    (University of Exeter)

  • Guangtao Fu

    (University of Exeter)

Abstract

Developing an adaptation option is challenging for long-term engineering decisions due to uncertain future climatic conditions; this is especially true for urban flood risk management. This study develops a real options approach to assess adaptation options in urban surface water flood risk management under climate change. This approach is demonstrated using a case study of Waterloo in London, UK, in which three Sustainable Drainage System (SuDS) measures for surface water flood management, i.e., green roof, bio-retention and permeable pavement, are assessed. A trinomial tree model is used to represent the change in rainfall intensity over future horizons (2050 s and 2080 s) with the climate change data from UK Climate Projections 2009. A two-dimensional Cellular Automata-based model CADDIES is used to simulate surface water flooding. The results from the case study indicate that the real options approach is more cost-effective than the fixed adaptation approach. The benefit of real options adaptations is found to be higher with an increasing cost of SuDS measures compared to fixed adaptation. This study provides new evidence on the benefits of real options analysis in urban surface water flood risk management given the uncertainty associated with climate change.

Suggested Citation

  • Haixing Liu & Yuntao Wang & Chi Zhang & Albert S. Chen & Guangtao Fu, 2018. "Assessing real options in urban surface water flood risk management under climate change," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 94(1), pages 1-18, October.
    • Handle: RePEc:spr:nathaz:v:94:y:2018:i:1:d:10.1007_s11069-018-3349-1
    DOI: 10.1007/s11069-018-3349-1
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    References listed on IDEAS

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    1. Michelle Woodward & Zoran Kapelan & Ben Gouldby, 2014. "Adaptive Flood Risk Management Under Climate Change Uncertainty Using Real Options and Optimization," Risk Analysis, John Wiley & Sons, vol. 34(1), pages 75-92, January.
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    Cited by:

    1. Hongbin Shi & Miao Zhou & Nana Kong & Yongling Zhang & Xin Li, 2023. "A Study on the Accessibility of the Emergency Medical Services for Urban Kindergartens and Nursing Homes Based on Urban Pluvial Flooding Scenarios," Sustainability, MDPI, vol. 15(13), pages 1-12, July.
    2. Sikhululekile Ncube & Scott Arthur, 2021. "Influence of Blue-Green and Grey Infrastructure Combinations on Natural and Human-Derived Capital in Urban Drainage Planning," Sustainability, MDPI, vol. 13(5), pages 1-16, February.
    3. Hong Lv & Xinjian Guan & Yu Meng, 2020. "Comprehensive evaluation of urban flood-bearing risks based on combined compound fuzzy matter-element and entropy weight model," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 103(2), pages 1823-1841, September.
    4. Yi, Changsheng & Chen, Zhaoming & Chen, Hongchen, 2023. "Opportunity knocks but just once: Impact of infrastructure investment decision on climate adaptation to flood events," Omega, Elsevier, vol. 121(C).

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