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Investments under Uncertainty in Air Transportation: A Real Options Perspective

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  • Miller, Bruno
  • Clarke, John-Paul

Abstract

Infrastructure investment decisions in air transportation are diffi cult because of long lead times, large capital expenditures and the technological, market and political uncertainties inherent in aviation. In such an environment, a flexible investment strategy is a means of managing risk. The central idea is to structure the investment so that it would benefi t from the upside potential if circumstances are resolved favorably, but would be protected from downside losses otherwise. In this paper, an evaluation methodology based on system dynamics and Monte Carlo simulation in a real options framework is utilized to evaluate different flexible infrastructure delivery strategies.

Suggested Citation

  • Miller, Bruno & Clarke, John-Paul, 2005. "Investments under Uncertainty in Air Transportation: A Real Options Perspective," Journal of the Transportation Research Forum, Transportation Research Forum, vol. 44(01).
    • Handle: RePEc:ags:ndjtrf:206746
    DOI: 10.22004/ag.econ.206746
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    References listed on IDEAS

    as
    1. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474.
    2. S. Fischer, 1977. "Call Option Pricing When the Exercise Price Is Uncertain and the Valuation of Index Bonds," Working papers 206, Massachusetts Institute of Technology (MIT), Department of Economics.
    3. Fischer, Stanley, 1978. "Call Option Pricing when the Exercise Price Is Uncertain, and the Valuation of Index Bonds," Journal of Finance, American Finance Association, vol. 33(1), pages 169-176, March.
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    Cited by:

    1. Bhadra, Dipasis, 2005. "Choice of Aircraft Fleets in the U.S. Domestic Scheduled Air Transportation System: Findings from a Multinomial Logit Analysis," Journal of the Transportation Research Forum, Transportation Research Forum, vol. 44(3).

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