"Complex" Real Options - Title Page - MIT
9.5 EXAMPLES OF FLEXIBILITY IN THE HOUSTON TRANSPORTATIONSYSTEMThis section presents the results from the first of the four questions: Can you provideexamples where flexibility is currently being used by your organization or by otherorganizations?This section focuses on current instances of where flexibility is being used in the surfacetransportation system in Houston. An overview of multiple systems where flexibility wasexplicitly designed into the system is presented, along with the current status of theflexibility.9.5.1 KATY FREEWAY EXPANSIONThe portion of Interstate-10 west of Houston, called the Katy Freeway and constructed inthe 1960’s, is now one of the most congested freeways in the United States. Designedinitially for 60,000 vehicles per day, it now carries over four times that amount on typicalweekdays (Katy Program 2004). As a solution to this congestion the Katy Freeway iscurrently undergoing significant widening, from 250 feet to 410 feet, over a length ofabout 12 miles (Katy Program 2004). The areas of expansion start just west of TexasState Highway 6 and ends near I-610 West, the inner ring road around Houston, as shownin Figure 9-11. At present, the construction is set to let in nine separate contracts, one foreach proposed segment, with construction planning on being completed around 2009.Total estimated costs are about $1.45 B (Katy Freeway Organization 2007).KatyFreewayExpansionFigure 9-11 Map of Houston showing area of Katy Freeway expansion. Map fromMapquest.380
Currently, the cross section of the Katy Freeway varies along the length of the corridor,but at a minimum has three general purpose lanes and two frontage lanes, in eachdirection, with five general purpose lanes at its widest. In addition to the general purposeand frontage roads, the Katy also currently has a combination of diamond or HOV lanesalong most of the length being expanded. The diamond lanes are managed lane facilitieson the inner left of the road, down the centerlane. The diamond lanes are separated fromgeneral traffic by a painted stripe, as shown in Figure 9-12. The HOV lane is barrierseparatedfrom the general traffic flow and in some places is elevated above the generalpurpose lanes, as shown in Figure 9-13.Previously, the diamond and HOV lanes were restricted to 2+ occupancy vehicles, butdue to high usage, lane restrictions were changed several years ago to 3+ occupancyvehicles. However, starting in 1998 under the FHWA’s Value Pricing Pilot Program,authorized by the Intermodal Surface Transportation Efficiency Act (ISTEA) as theCongestion Pricing Pilot Program, and then renewed with the Safe, Accountable,Flexible, Efficient Transportation Equity Act: A Legacy for Users (SAFETEA-LU), someamount of pricing was added to the operation of the managed lanes on the Katy Freeway.Under the pricing scheme administered by Metro, 3+ passenger vehicles could still usethat facility for free, but at certain times of day 2+ passenger vehicles could gain accessto the managed lane for a flat fee of $2. The purpose of the pricing was to use the excesscapacity created by the shift in operations from 2+ to 3+ vehicles and to generate extrarevenue.Figure 9-12 Diamond lane separated by painted line only.381
ACKNOWLEDGEMENTSThis dissertation i
students. I am sure I am missing pe
6.7 Enterprise and Institutional Ch
Table 8-8 Summary of existing mode
Figure 3-17 System management loop
Figure 5-13 Historical world annual
Figure 7-19 Decision path for ITS m
Figure 10-3 Summary of differences
1. A large commercial aircraft maki
made to the system are often not on
From the MIT Engineering Systems Di
enterprise, the enterprise itself m
system capable of coping with uncer
Ch. 2Ch. 3Ch. 4Ch. 7Ch. 5Ch. 8Ch. 6
applicability of the framework. Fin
Myers, S. (1977) Determinants of Ca
FindingsFigure 2-1 Research process
• Difficult to predict future beh
As is apparent in the literature, t
of these. Ideally, either with the
do not appear to be mutually exclus
The ability for a system to activel
price (the option price) for the fl
and the results can be easier to ex
For some real options this appears
there is value to waiting to see wh
2.5 REAL OPTION PROCESSESExisting p
option is then evaluated with a “
• Option to engage in exploration
elatively straight-forward and are
OptionComplexityReal option in syst
2.8 REFERENCESAllen, T. et. al. (20
Hayes, R. and D. Garvin. (1982) Man
Ross, A. (2006) Managing Unarticula
3 LIFE-CYCLE FLEXIBILITY (LCF) FRAM
3.1 OVERVIEW OF NEED FOR LIFE-CYCLE
Figure 3-3 Condensed version of the
level, the appropriate enterprise n
3.1.2.1 Conceiving an OptionThe abi
3.1.2.2 Design and Evaluation of Op
option holder can not exercise the
system’s underlying structure and
3.2.2 DECISION TO USE LCF FRAMEWORK
Figure 3-11 Integration of decision
ounded rationality is not an issue,
quantitative analysis chapters, Sec
meantime, the land now would have d
3.2.5 DESIGN STRATEGY FOR OPTION EX
anticipated that external political
Figure 3-16 illustrates how the str
3.2.6 MANAGING THE SYSTEMManaging t
System Management LoopFigure 3-17 S
System Management LoopSystemImpleme
Long-term Management Loop ofUnknown
Long-term Management Loop of Unknow
Enterprise Readiness is included as
Figure 3-23 Condensed LCF Framework
3.4 REFERENCESAllen, T. et. al. (20
4 FLEXIBILITY IN BLENDED WING BODY
4.1.1 THE EARLY YEARSAfter the firs
Figure 4-2 Sikorsky S-42 Flying Boa
The 1950’s saw aircraft shift fro
to the government for doing so, wou
Figure 4-7 European supersonic civi
While airlines compete on a variety
Figure 4-11 Comparison of several l
Figure 4-12 Foreign and domestic so
Figure 4-14 Drawings from Leonardo
shifting their body weight) to the
Figure 4-19 Semi-monocoque construc
With a bi-wing (or tri-wing) constr
Figure 4-24 Loads and lifts generat
Figure 4-25 747-8, showing both loc
Additional benefits of the BWB arch
4.4.1 BWB OPTION DECISION PATHSFor
lower costs, higher scales of econo
Miller, B. (2005) A Generalized Rea
5 VALUE OF FLEXIBILITY IN BLENDED W
This chapter is composed of three m
this research were deemed necessary
For clarity of discussion, a high l
model, a better understanding of co
An overview of each of these subsys
important and may make inroads into
Figure 5-9 Airline finances and pro
Figure 5-10 Airline profitability,
Product design is based on a trade-
The airframe manufacturer productio
$70Inflation Adjusted Crude OilPric
5.2.5 MODEL VALIDATIONThe system dy
Forecast data (all planes)Model dat
5.3.1 INHERENT BENEFITSBWB technica
minor differences between aircraft
The remainder of this section looks
derivative depends on corporate str
Table 5-1 Number of derivatives lik
LowFuelCosts35%30%HighFuelCostsProb
The results presented can be interp
Compared to the Boeing 787, the dev
than a European option, because of
In the opposite case where the BWB
Because of the consequences of exer
35%30%Probability25%20%15%10%5%0%$-
BWB does not seem to offer advantag
type plane, relative to conventiona
5.4 REFERENCESAirbus. (2006) Annual
6 CHALLENGES OF FLEXIBILITY IN BLEN
FindingsFigure 6-1 Case study analy
Figure 6-2 Characteristics of case
6.1.3 INTERVIEWEE SELECTIONAs the i
Table 6-2 ITS case study organizati
about flexibility, i.e. is it a goo
2. If flexibility is used, can you
case with BCA, which has embraced a
primarily through military and NASA
Figure 6-7 Delivery and market fore
to meet rising demand, the overall
Another option widespread in the ai
design, evaluate or manage flexibil
Interviewee views on flexibility ce
and evaluations are based around th
operating and maintenance costs by
when fuel costs increased substanti
options, such as cross-program deri
6.9 REFERENCESAirbus. (2007) Produc
7 FLEXIBILITY IN HOUSTON GROUNDTRAN
Figure 7-2 Characteristics of case
cases can be added to existing or n
7.2.2 STANDARD ITS TECHNOLOGIES AND
• increased opportunities for pri
for Inherently Low Emitting Vehicle
Marker 2005). This type of cross fu
Figure 7-4 Plastic pylon separated
ecause the network of sensors can t
operating conditions. Additional ro
DSRC based system would require a l
Houston has already deployed one of
Figure 7-13 Transit center location
Figure 7-15 Houston’s managed lan
as HOT or TOT lanes. This can be es
BuildtraditionalinfrastructureDelay
HOT / BRTlaneNon-flexibleTOT / BRTl
BuildtraditionalinfrastructureDelay
or improved safety functions could
Haning, C. and W. McFarland. (1963)
8 VALUE OF FLEXIBILITY IN HOUSTON G
attempt was made to completely repr
Figure 8-4 Quantitative analysis pr
8.2.1.1 Travel Demand ModelingThe t
ange of traffic analysis studies to
I-10 KatyFreewayI-610(innerloop)Bel
5 lanesFigure 8-10 Example of satel
Beltway 8(secondary loop)I-610 (inn
8.2.2.5 Major Modeling AssumptionsD
from a public agency that is intere
funding improvements that would pre
This is because of the low-cost of
From the analysis above, with the d
Figure 8-16 Addition of two general
capabilities are typically deployab
Currently, the Silver Line right-of
technical system as well as the soc
In the ITS case study, the transpor
system that the technical system is
option exercise unlikely (building
some future date. This type of wast
DesignPhaseEvaluationPhaseManagemen
ITS capabilities used to create the
technical and social components of
incorporated directly into the mode
As defined in Section 2.6, the diff
In the BWB case study, an enterpris
For “standard” real options it
“Standard” real options are des
From the research it was found that
d. Evaluating the option with quant
need for the system is, while simul
10.7 REFERENCESClemons, E. and B. G
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