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Study on Real Options Decision-making Model of BOT Projects

Author: LiuNing
Tutor: DaiDaShuang
School: Dalian University of Technology
Course: Technology Economics and Management
Keywords: BOT(build-operate-transfer) Real Options Concession Agreement Decision-making Model
CLC: F224
Type: PhD thesis
Year: 2012
Downloads: 488
Quote: 0
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Abstract


The mode of BOT is an effective way to realize the diversification of infrastructure construction investment and ease the financial pressure, but in practice the implementation effect is not ideal, for the government assumes too much responsibility or the investors give up. Especially because of a long concession period and high concession price, the investors win the excess return. It will greatly increase the burden on society, causing widespread public concern, and even lead to question the soundness of BOT model. Therefore, it has important theoretical and practical value to study on the value of the BOT projects decision-making, agreement optimization and project management.Based on the method of real options and the basic characteristics of the uncertainty of the BOT projects value, this paper puts forward three key problems:decision-making problems of real options value under uncertain circumstances, optimal decision-making problems of the government and investors’risk-benefit under risk appetite and effort, the governance problem of BOT projects supervision with asymmetric information. It compares the real options method with the traditional evaluation method, concludes the present situation of real options in BOT projects decision-making areas, and proposes the existing lack of research and research focus.A real options value decision-making model of BOT projects is established. For the characteristics of BOT projects, this paper proposes the influence factors of real options value and also summarizes the research of decision-making model on Concession Term and decision-making model with concession price. It builds the real options value decision-making model of BOT projects, based on parameter hypothesis. Considering these factors related to BOT projects decision-making influence including construction period, volatility, drifting rate, and risk-free rate, the paper makes the parameter hypothesis respectively. Numerical analysis results shows that the real options method used to get the project value is higher than using the traditional method of evaluation. This paper proves the effectiveness of the model by actual cases and the parameter sensitivity analysis.A renegotiating decision-making model of BOT projects is established. On the basis of the quantization of real options parameters in the decision period corresponding to renegotiating with the lowest income security in the government, this paper uses the binary tree model to get real options value of BOT projects through the Iterative Method and respectively deduces the corresponding solution with two kinds of cases which is the step of1 and the step of greater than1. The case uses the numerical analysis to discuss the influence of the value of the project including volatility, Concession Term, drifting rate, initial investment and risk-free rate under the lowest income security of the government, which proves the effectiveness of the model.A decision-making model of BOT projects’risk-return matching is established. Due to the flexible contract features of concession agreement on BOT projects, considering the role of the lowest income security factors in agreement, this paper puts forward the basic model of concession agreement and finds the optimal solution of production or service volume respectively from investors and the government; In addition, considering the influence of risk preference and subjective efforts respectively, the paper establishes a decision-making model based on risk preference and a decision-making model based on subjective efforts, optimizing concession agreement to achieve the decision goal of maximizing social benefits. Numerical analysis results show that the lowest income security can be effective to transfer project risk and improve the government and investors expected return, but in considering subjective efforts factors, the decision-making of individual investors and is consistent with the optimizing result of agreement, but the optimal level of government’s efforts is contradicted with the optimizing result, the key of realizing the goal of optimizing agreement depends on the government’s effortsAn intendance game decision-making model of BOT projects is established. The interest conflicts and information asymmetry between the investors of BOT projects and the government become principal-agent relationship. The characteristics of BOT projects lead to separation of management and supervision. Considering the respective effects of symmetric and asymmetric information, this paper adopts real options game method to establish respectively symmetric information decision model and asymmetric information decision model. The research shows that in two-dimensional asymmetric information of costs and revenues, the government should infer the value of projects and operating costs according to the observed investment threshold. Then the government works out the contracts with agents, providing the corresponding guarantee at the concession agreement of the optimal investment threshold, motivating investors to achieve maximum benefits of BOT projects. Through numerical analysis, the effectiveness of the model is proved.

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CLC: > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods
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