"Complex" Real Options - Title Page - MIT
Table 9-6 Summary of major lessons learned from ITS case study qualitative analysis.Alternative uses of optionsOptions are currently be used in ways not described in the real options literature.Specifically, they seem to be commonly used as a tool to resolve political considerations.Unanticipated consequences of optionsA flexible system can create uncertainty for stakeholdersStakeholder dependant costsCosts associated with the same option will vary across stakeholders. Private enterpriseswill likely face lower political costs than public enterprisesNew ways to oppose flexible systemsOpponents of flexible systems can continue resistance to a system past the date of systemdeploymentDimensions of resistance can include:• Changing option exercise decision rule• Change option exercise cost• Prevent active management and monitoring of the systemOption design considerationsQuantitative analysis of “complex” real options in complex systems is not sufficient todetermine if the option is worthwhile or even possibleQualitative analysis is necessary to determine how the option should be designed andhow the costs should be structured. Two ways of structuring the costs were found:• Pay for the political costs initial in the option purchase price to facilitate optionexercise by an option holder different from the stakeholder who purchased theoption• Pay for the economic costs initial and delay the political costs in the hope thatpolitical costs will be reduced if all other costs have already been paid414
9.10 REFERENCESABC7. (2004) Chicago officials present massive security network, ABC7Chicago.com,Nov. 2004.Altshuler, A. and D. Luberoff. (2003) Mega Projects: The Changing Politics of UrbanPublic Investment, Brookings Institution Press, Washington DC.Banks, J. (2002) Introduction to Transportation Engineering, 2 nd Ed. McGraw Hill, NewYork.Brewer, S. and R. Sallee. (2002) Metro Action Spurs Legal Threat; Radack ResentsInterference with Katy Freeway Widening Project, Houston Chronicle, March 26, 2002.Canon, K. (2003) Residents Push for Light Rail Extension to Suburbs, HoustonChronicle, May 22, 2003.Canon, K. (2002) Culberson, Constituents Trade I-10 Barbs; Congressman CallsLawsuit to Halt Freeway Expansion ‘Frivolous’, Houston Chronicle, October 24, 2002.Chicago Tribune. (2003) “Chicago Surveillance Cameras to be fitted with listeningdevices”, Chicago Tribune, April 7, 2004.City of Houston. (2007) City of Houston: Department of Public Works and Engineering,http://www.publicworks.cityofhouston.gov/Crossley, D. (2004) Gulf Coast Institute Comments on HGAC 2025 Plan, found athttp://www.gulfcoastinstitute.org/reports/gci_comments.pdfCTA Press release (2004) www.transitchicago.com.Dodder, R. (2006) Air Quality and Intelligent Transportation Systems: UnderstandingIntegrated Innovation, Deployment and Adaptation of Public Technologies, Dissertationat MIT, Massachusetts.Goodin, G. (2005) Managed Lanes: The Future of Freeway Travel, Institute ofTransportation Engineers. ITE Journal, Feb. 2005.Governor’s Business Council. (2006) Shaping the Competitive Advantage of TexasMetropolitan Regions: The Role of Transportation, Housing and Aesthetics, TexasGovernor’s Business Council.Greater Houston Partership. (2006) Transportation Funding memo.415
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
Table 8-5 Benefit-Cost Ratios for K
35%30%25%Probability20%15%10%5%0%$(
Figure 8-20 NPV density function, w
Table 8-6 Summary of flexibility to
Figure 8-23 Comparison of ITS/delay
vehicles would continue to gain fre
Figure 8-24 Value of time savings f
This illustrates the importance of
Table 8-10 Summary of ITS case stud
Similar to the above discussion of
9 CHALLENGES OF FLEXIBILITY IN HOUS
new challenges as well as increase
9.2 QUALITATIVE ANALYSIS PROCESSPre
The qualitative research methodolog
to be able to answer the research q
Table 9-1 Functional activities per
USDOT, Volpe Center, Officeof Syste
10.7 REFERENCESClemons, E. and B. G
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