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http://dx.doi.org/10.6106/KJCEM.2011.12.3.121

A Study on Early Termination Payment Option of BTO PPI Projects  

Shin, Sung-Hwan (홍익대학교 경영대학)
Publication Information
Korean Journal of Construction Engineering and Management / v.12, no.3, 2011 , pp. 121-130 More about this Journal
Abstract
Real option values of early termination payment for selected BTO PPI projects are studied using binomial models. Two cases of early termination payments are considered; an option with the condition of private participants' default, and an option without the condition. Values vary depending upon parameter values such as revenues, costs, discount rates, debt ratio, and volatility of revenues. For selected projects, the option values without the default condition are estimated as 1%~7% of total project costs, whereas the option values with the default condition are estimated as 0%~1.89% of total project cost. When actual revenues differ from the forecasted revenues, apparently the option values deviate from the values based upon the forecasted revenues. When actual revenues fall short of the forecasted revenues, the option values increase by a large amount whereas the option values decrease by a small amount in the opposite case. This implies that the option values can be quite bigger than the values based upon the forecasted revenue especially when the revenue forecast uncertainty is large. This study is expected to play an important role in improving the early termination payment option policy of the government in PPI projects in Korea.
Keywords
Real Option; Early Termination Payment; PPI projects; Revenue Forecast Uncertainty;
Citations & Related Records
Times Cited By KSCI : 2  (Citation Analysis)
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