IDEAS home Printed from
   My bibliography  Save this paper

Value of Options in Airport Expansion - Example of AICM


  • Frederico Morgado
  • Sai Suresh Nagaralu
  • Rosário Macário


  • Richard De Neufville


Investments decisions for airport capacity expansion are usually taken, either when demand exceeds the current capacity and the airport is working under congestion, or when current demand is expected to overcome current capacity sometime in the near future. In any case, decisions are taken taking into account forecasts of future demand. In many situations, deterministic analysis lead to a discouraging net present value (NPV) which in turn causes delays in the deciding process and eventually leads to further losses. This paper takes the Mexico City International Airport (AICM) as example, and performs an analysis of expansion investment, both in runways and terminals capacity, taking a perspective that is twofold: we take uncertainty of demand into account based on historical data of relevant parameters; we use flexibility in design by incorporating options in project, for both new runways and new terminal. Using a binomial lattice model, we calculate the value of options, perform sensitivity analysis and determine the expected statistical distribution of NPV. We obtain significant differences when compared with the deterministic perspective, and illustrate by example how real options and flexible design may dramatically improve the attractiveness of an investment decision.

Suggested Citation

  • Frederico Morgado & Sai Suresh Nagaralu & Rosário Macário & Richard De Neufville, 2011. "Value of Options in Airport Expansion - Example of AICM," ERSA conference papers ersa11p150, European Regional Science Association.
  • Handle: RePEc:wiw:wiwrsa:ersa11p150

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Michael A. Kouparitsas, 2002. "Understanding U.S. regional cyclical comovement: How important are spillovers and common shocks?," Economic Perspectives, Federal Reserve Bank of Chicago, issue Q IV, pages 30-41.
    2. Carlino Gerald & Defina Robert, 1995. "Regional Income Dynamics," Journal of Urban Economics, Elsevier, vol. 37(1), pages 88-106, January.
    Full references (including those not matched with items on IDEAS)

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:


    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:wiw:wiwrsa:ersa11p150. 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: (Gunther Maier). 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.