Evaluating Alternative Operations Strategies to Improve Travel Time ...

SHRP 2 L11: Final Appendices
Figure C.4 - Duration per Avalanche Closure (Hours)
Data on the duration of the closure associated with avalanches was also obtained, and used as a
proxy for the parameters of the Wiener process. The resulting data and options formulation allow
the analyst to characterize the certainty-equivalent net benefits associated with mitigating
avalanches at cost K. Figure C.5 illustrates the project value F(V) corresponding to a $10 million
cost of mitigation, K, for values of V (with r=0.09, π=0.05 and s=0.1). As the value of the benefit
of the mitigation (V) increases, so too does the project value F(V).
Figure C.5 - Example of Option Value, F(V) for Avalanche Closure Events
10
8
6
4
2
0
0 5 10 15 20 25 30 35 40 45 50
V
In Figure C.6, F(V) is shown for three different values of K, expressed in millions of dollars. For
K=0.0001, F(V) is essentially a gross benefit calculation, as a very low value for the cost of
mitigation has been used to calculate the certainty-equivalent benefit. As the cost of the mitigation
VALUATION OF TRAVEL-TIME RELIABILITY FOR RARE EVENTS Page C-11