DocumentCode :
2957391
Title :
Value-at-risk analysis for real options in complex engineered systems
Author :
Hassan, Rania ; De Neufville, Richard ; McKinnon, Douglas
Author_Institution :
Aeronaut. & Astronaut. & Eng. Syst., Massachusetts Inst. of Technol., Cambridge, MA, USA
Volume :
4
fYear :
2005
fDate :
10-12 Oct. 2005
Firstpage :
3697
Abstract :
This paper presents a simple but powerful real options valuation methodology suitable for valuing flexibility in complex engineered systems. It is based on value-at-risk analysis and relies on a standard discounted cash flow approach. It demonstrates the method with a case study of the architecting of flexible fleets of satellites. The architecting framework integrates spacecraft engineering design with economic analysis to maximize the financial value of a fleet to the operator under realistically uncertain, evolving market conditions. The investigation considers possible evolutions of the forecast demand for a satellite service in two distant geographical markets simultaneously. It defines flexible fleets that significantly improve various aspects of the value-at-risk distributions compared to those of a traditional, rigid fleet architecture. It shows that the flexible architectures can capture more revenue, mitigate more risk and/or reduce overall required investment. The suggested real options "in" the system, rather than "on" the system, approach allows engineers, strategists, or decision makers in engineering establishments to embed flexibility in the design of complex systems so they can maximize total lifetime project value.
Keywords :
artificial satellites; cost accounting; risk analysis; complex engineered systems; complex system design; decision makers; economic analysis; fleet architecture; forecast demand; genetic algorithm; real options valuation methodology; satellite service; spacecraft design; spacecraft engineering design; standard discounted cash flow; value-at-risk analysis; value-at-risk distribution; Aerospace engineering; Cost accounting; Demand forecasting; Design engineering; Economic forecasting; Power engineering and energy; Power generation economics; Satellites; Space vehicles; Systems engineering and theory; Fleet Architecture; Flexibility; Genetic Algorithm; Real Options; Spacecraft Design;
fLanguage :
English
Publisher :
ieee
Conference_Titel :
Systems, Man and Cybernetics, 2005 IEEE International Conference on
Print_ISBN :
0-7803-9298-1
Type :
conf
DOI :
10.1109/ICSMC.2005.1571721
Filename :
1571721
Link To Document :
بازگشت