Option pricing model to analyze cost-benefit trade-offs of ADR investments in AEC projects

Journal of Construction Engineering and Management

Volumn 135, Issue 3, 2009, Pages 156-168

  Menassa, Carol C ^a,b   Mora, Feniosky Pea ^a   Pearson, Neil ^b  

^a UNIVERSITY OF ILLINOIS AT URBANA CHAMPAIGN   (United States)

^b UNIVERSITY OF ILLINOIS AT URBANA CHAMPAIGN   (United States)

Author keywords

Benefit cost ratios; Claims; Construction costs; Costs; Dispute resolution; Mathematical models

Indexed keywords

A-PRIORI; AEC PROJECTS; ALTERNATIVE DISPUTE RESOLUTIONS; ARCHITECTURE , ENGINEERING , AND CONSTRUCTIONS; BENEFIT COST RATIOS; BRIDGE PROJECTS; CASH FLOWS; CHANGE ORDERS; CLAIMS; CONSTRUCTION COSTS; DECISION FRAMEWORKS; DISPUTE RESOLUTION; MANAGERIAL DECISIONS; NET PRESENT VALUES; OPTION PRICING MODELS; PROJECT PLANNING; PROJECT'S LIFE CYCLES; REAL OPTION PRICING; SEISMIC RETROFITS;

CONSTRUCTION INDUSTRY; COSTS; ECONOMIC AND SOCIAL EFFECTS; ECONOMICS; INVESTMENTS; LAWS AND LEGISLATION; LIFE CYCLE; PARAMETER ESTIMATION; PROGRAMMING THEORY; REFRIGERATORS; RETROFITTING; UNCERTAINTY ANALYSIS;

MATHEMATICAL MODELS;

EID: 60449099999     PISSN: 07339364     EISSN: None     Source Type: Journal    
DOI: 10.1061/(ASCE)0733-9364(2009)135:3(156)     Document Type: Article

References (26)

1. Associated General Contractors of America (AGC). (2000). " Enlightened risk allocation-The 21st century owner's guide to cost effectiveness.." 〈 http://www.agc.org/ 〉 (Jan. 15, 2006).
2. Black, F., and Scholes, M. (1973). " The pricing of options and corporate liabilities.." J. Polit. Econ., 81 (3), 637-654.
3. Boute, R., Demeulemeester, E., and Herroelen, W. (2004). " A real options approach to project management.." Int. J. Prod. Res., 42 (9), 1715-1725.
4. Brealey, R., and Myers, S. (2000). Principles of corporate finance, 6th Ed., Irwin/McGraw Hill, Burr Ridge, Ill.
5. California Department of Transportation (Caltrans). (2000). Field guide to partnering on caltrans projects, Caltrans.
6. California Department of Transportation (Caltrans). (2003). Construction manual, Caltrans.
7. California Department of Transportation (Caltrans). (2006). Project development procedures manual, Chap., Caltrans, 〈 http://www.dot. ca.gov/hq/oppd/pdpm/chap-pdf/chapt20.pdf 〉 (Apr. 22, 2007).
8. Construction Industry Institute (CII). (1995). " Dispute prevention and resolution techniques in the construction industry.." Research Summary 23-1, Dispute Prevention and Resolution Research Team, CII, Univ. of Texas at Austin, Austin, Tex.
9. Copland, T., and Tufano, P. (2004). " A real world way to manage real options.." Harvard Bus. Rev., 82 (3), 1-12.
10. Dixit, A., and Pindyck, R. S. (1994). Investment under uncertainty, Princeton University Press, Princeton, N.J.
11. Federal Reserve Statistical Release (FRSR). (2008). " Market yield on U.S. treasury securities at 5-year constant maturity, quoted on investment basis.." The Federal Reserve Board, 〈 http://www.federalreserve.gov/ releases/H15/data/Annual/H5-TCMNOM-Y5.txt 〉 (Apr. 07, 2008).
12. Fenn, P., O'Shea, M., and Davies, E. (1998). Dispute resolution and conflict management in construction: An international review, E & FN Spon, London.
13. Fichman, R., Keil, M., and Tiwana, A. (2005). " Beyond valuation: Option thinking in IT project management.." Bridge Found. Eng., 47 (2), 74-96.
14. Hecht, P. (2007). " Union rips caltrans budget-Plan leaves 100 state jobs unfilled and relies on 595 private design workers at double the salary rate.." The Sacramento Bee, 〈 http://www.celsoc.org/userdocuments/ File/SacBee-05-20-07. pdf 〉 (Apr. 07, 2008).
15. Hull, J. (2000). Options, futures, and other derivative securities, 4th Ed., Prentice-Hall, Englewood Cliffs, N.J.
16. Knight, F. (1921). Risk, uncertainty, and profit, Houghton Mifflin, Boston.
17. Luehrman, T. (1995). " Capital projects as real options: An introduction.." Technical Note 9-295-074, Harvard Business School, 1-12.
18. Luehrman, T. (1998). " Strategy as a portfolio of real options.." Harvard Bus. Rev., 76 (5), 89-99.
19. Menassa, C., and Pea Mora, F. (2006). " A study of DRB process and cost savings from an owner's perspective.." Proc., 10th Annual Dispute Review Board Foundation Meeting and Conf., Orlando, Fla.
20. Menassa, C., and Pea Mora, F. (2007). " An option-based dynamic optimization model to evaluate ADR investments in AEC construction projects.." Proc., CME25 Construction Management and Economics: Past, Present and Future, Univ. of Reading, W. Hughes, ed., Taylor and Francis, London.
21. Pea Mora, F., Sosa, C., and McCone, D. (2003). Introduction to construction dispute resolution, Prentice-Hall, Englewood, Cliffs, N.J.
22. Touran, A. (2003). " Calculation of contingency in construction projects.." IEEE Trans. Eng. Manage., 50 (2), 135-140.
23. Treacy, T. (1995). " Use of alternative dispute resolution in the construction industry.." J. Manage. Eng., 11 (1), 58-63.
24. Trigeorgis, L. (1993). " Real options and interactions with financial flexibility.." Financ. Manage., 22 (3), 202-224.
25. Trigeorgis, L. (1996). Real options managerial flexibility and strategy in resource allocation, MIT, Cambridge, Mass.
26. Wilmott, P., Howison, S., and Dewynne, J. (2005). The mathematics of financial derivatives, Cambridge University Press, Cambridge, Mass.