IDEAS home Printed from
   My bibliography  Save this article

Valuation of a Hydro-Electric Power Project in Emerging Markets: An Application of Real Options


  • Richard Ebil Ottoo

    () (Pace University)


We apply a contingent-claims technique and demonstrate how to value an emerging market hydro electric power investment under uncertainty. The investment project depends on reliable weather conditions and the capacity of a river to drive the water turbines. Uganda’s Bujagali dam project located at the source of the Nile River is the focus of our study. We identify four mutuallyexclusive real options and incorporate the correlation of returns on rainfall and cash flows as well as a premium for lack of transparency in the estimation of project risk. We document a leverage effect and a volatility effect on project value.

Suggested Citation

  • Richard Ebil Ottoo, 2012. "Valuation of a Hydro-Electric Power Project in Emerging Markets: An Application of Real Options," The African Finance Journal, Africagrowth Institute, vol. 14(1), pages 1-36.
  • Handle: RePEc:afj:journl:v:14:y:2012:i:1:p:1-36

    Download full text from publisher

    File URL:
    Download Restriction: no

    More about this item


    Valuation; Real Options; Cost of Capital; Project Finance; Investment; Emerging Markets; Hydro-Electricity;

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:afj:journl:v:14:y:2012:i:1:p:1-36. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kirk De Doncker). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.