Please use this identifier to cite or link to this item:
|Title:||Time to build options in construction processes|
|Keywords:||Input cost uncertainty|
Project payoff uncertainty
Time to build option
|Citation:||Sing, T.F. (2002). Time to build options in construction processes. Construction Management and Economics 20 (2) : 119-130. ScholarBank@NUS Repository. https://doi.org/10.1080/0144619011010209|
|Abstract:||Time to build is a very important factor in a real estate development venture. Delay in completion of a project not only affects the financing costs and the rental revenue but also it may, on a more strategic note, determine the success or failure of a project. A time to build option model consisting of a stochastic rate of completion and a stochastic net project payoff is applied to the sequential construction process of a large scale construction project. The results of the sensitivity analysis show that the optimal payoff value, that triggers the exercise of the option to invest at a maximum rate, increases positively with the increases in cash flow volatility, input cost uncertainty, excess asset return per unit risk and maximum rate of investment. However, it has a negative relationship with the rental yield. In a case study involving a commercial project, the premium for hedging the payoff risks by pre-leasing a project was estimated at 11.29%, whereas the additional cost incurred for shielding a project against input cost risks in a design and build contract was estimated at 7.80%, where each is given as a percentage of the total construction costs.|
|Source Title:||Construction Management and Economics|
|Appears in Collections:||Staff Publications|
Show full item record
Files in This Item:
There are no files associated with this item.
checked on Nov 16, 2018
checked on Oct 13, 2018
Items in DSpace are protected by copyright, with all rights reserved, unless otherwise indicated.