Flexible Design of Airport System Using Real Options Analysis - MIT

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Table of Contents 1. Introduction .................................................................................................................1 2. Outline of the Case Project.........................................................................................1 2.1 Tokyo International Airport....................................................................................1 2.2 Runway Extension Project......................................................................................2 2.3 Current Design is Optimal? ....................................................................................3 2.4 Project Capacity of Airport.....................................................................................5 2.5 Flexible Design.......................................................................................................5 3. Real Options Analysis .................................................................................................6 3.1 Financial Options Theory .......................................................................................6 3.1.1 Black-Sholes Option Pricing Model ................................................................7 3.1.2 Binomial Lattice Model ...................................................................................8 3.1.3 Monte Calro Simulation...................................................................................9 3.2 Real Options Analysis ............................................................................................9 3.2.1 Real Options.....................................................................................................9 3.2.2 Types of Real Options ...................................................................................10 3.3 Application of Real Options Analysis to Case Study...........................................10 3.3.1 Which Method should be used for the Case Study? ......................................10 3.3.2 Real Options Analysis Using Monte Calro Simulation .................................11 4. Analysis of Case .........................................................................................................11 4.1 Analysis Condition ...............................................................................................11 4.1.1 Capital Investment .........................................................................................12 4.1.2 Revenues and Costs .......................................................................................13 4.1.3 Capacity of Airport ........................................................................................14 4.1.4 Discount Rate.................................................................................................14 4.2 Uncertainty in System...........................................................................................14 4.3 Demand Forecasting .............................................................................................15 4.4 Summary of Analysis Condition ..........................................................................17 4.5 Result of Analysis.................................................................................................18 5. Conclusion..................................................................................................................21 6. References ..................................................................................................................22
12/14/2007 1.231 Planning and Design of Airport System Dai Ohama 1. Introduction The Airport systems not only in the U.S. but also all over the world are now very complex. However, all of them are not always designed optimally. Some facilities are built excessively compared to their estimation during planning phases, others are required improvement since they are too large for the actual situations. [1] For example, the size of the New Denver Airport is too big, and as a matter of fact there is an unnecessary passenger building. The Newark airport is unsuited for the actual transfer and international traffic, and major changes should be required. The reason for them is that the master plan of these airport systems did not anticipate future risks and uncertainties of possible changes in market conditions, and did not consider the countermeasure of those real risks. Eventually, it leads to losses or extra costs, and even losses of opportunities happen. Thus, the master plan is often inflexible and inherently cannot respond to the risks. In order to respond to this situation, it is essential to plan strategically by considering future risks and uncertainties and by applying flexibility into design. This project is to consider one of the possible effective ways to incorporate flexibility into design by using real options analysis. The goal of this project is to demonstrate how the flexible design is conducted and how it works. The case of “Tokyo International Airport New Runway Extension Project” is applied as a case study. 2. Outline of the Case Project 2.1 Tokyo International Airport Tokyo International Airport or Haneda Airport (HND) is located in the bay area, near the center of Tokyo. Haneda Airport is the busiest and an important hub airport in Japan for domestic air traffic.[2] Haneda Airport is consistently ranked among the world's busiest passenger airports in terms of the number of passengers, and its ranking was fourth in 2006. Currently it has three runways (Runway A: 3,500m, Runway B: 2,500m, Runway C: 3,000m), serving nearly 60 million passengers every year. The total capacity of Haneda Airport is 296,000 aircraft (a/c) per year. Term Project: Flexible Design of Airport System Page 1 of 22
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Flexible Design of Airport System Using Real Options Analysis - MIT

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