Evaluating Alternative Operations Strategies to Improve Travel Time ...

SHRP 2 L11: Final Appendices
most strategies that are used to reduce unreliability will benefit both freight and passenger travel.
In general, the options value of unreliability should be monetized using a traffic-weighted average
value of time by vehicle class and by trip purpose.
To evaluate long-term strategies and treatments to improve system reliability, it is necessary to
understand how traffic growth affects both average speeds and the volatility of those speeds.
Average speed relationships that are derived from historic data may help determine the future
levels of unreliability. In addition, microsimulation models may also help characterize the
stochastic nature of future system performance.
Valuing Reliability for Rare Events
While a sufficiently long time series of high-resolution traffic performance data (e.g., highway
speeds) tends to display log-normal distribution, one can imagine many situations where a
transportation agency is concerned about events, or sources of variability that are extremely rare.
Some examples include physical phenomena such as earthquakes, avalanches, and particularly
severe/rare flooding. Examples would also include bridge failures from various causes and terrorist
acts that disrupt transportation links or networks.
Ignoring the prospect of rare events and using pure Gaussian assumptions instead is at the heart of
many financial and engineering catastrophes, including Long-Term Capital, and elements of the
financial crisis that precipitated. One of the reasons that we distinguish between recurring and rare
events in our discussion and the development of the options theoretic approaches is to draw
attention to the rare event issue. Unfortunately, implementation of strategies to protect against rare
events in a cost-effective way is very difficult because of the problem of characterizing the event
distribution and the complexity of mathematically representing the proper investment strategy.
This is especially challenging in the setting of highway infrastructure development and operation.
The options theoretic approach to the valuation of travel time reliability is extended to rare events
using new options formulations aimed at addressing rare events, specifically events that follow
extreme value distributions (EV). Research on options theory using EV distributions is relatively
new, and has not been applied, to our knowledge, to settings other than an example application for
research and development (R&D) in the pharmaceutical industry. Therefore, we present the rare
event methodology in a separate appendix and recommend future research aimed at addressing
uncertainty arising from rare events in investment decision-making.
Measuring Network-Wide Impacts
Policies and strategies that are intended to improve roadway reliability may affect only certain
segments or an entire regional network. Similarly, the adverse impacts of phenomena such as
flooding, bridge failures, or accidents may occur on just a few segments or over large portion of a
regional network. Thus, the final step in mitigating system unreliability is to consider methods for
addressing the scale of the impact.
The certainty-equivalent options perspective can be applied to an individual segment or to an
entire network so long as the appropriate data exist to provide the necessary parameters. At times,
the analysts may be asked to extrapolate the effects of unreliability on measured on one link to the
entire network. For example, a bridge failure or avalanche may be confined to a single segment or
group of segments, but deterioration of reliability in that area may propagate elsewhere in the
network.
DETERMINING THE ECONOMIC BENEFITS OF IMPROVING TRAVEL-TIME RELIABILITY Page B-18