BC3 Journal Article “Investing in adaptation: flood risk and real option application to Bilbao”


Go to external source

Abadie, L.M., Sainz de Murieta, E.,Galarraga, I. 2017. Investing in adaptation: flood risk and real option application to Bilbao. Environmental Modelling & Software. 95. 76-89. DOI (10.1016/j.envsoft.2017.03.038)

Abstract

Investment decisions in adaptation are usually made under significant uncertainty due to climate change and socio-economic trends. In this study, we propose three ways to incorporate climate and socio-economic uncertainty into the assessment of an adaptation infrastructure designed to cope with flood-risk in the city of Bilbao. First, we use stochastic modelling to estimate the present value of expected damage over a time period, considering that extreme events may increase in the future. Second, we develop an additional calculation that incorporates two risk measures used in financial economics: Value-at-Risk and Expected Shortfall, the latter being a less common but better risk indicator. Third, we illustrate a case of Real Options Analysis (ROA) in which a binomial tree is used to study whether the best decision at present is to invest now or to delay the investment decision.

Leave a Reply

Your email address will not be published. Required fields are marked *

We use cookies of our own and of third parties to improve our services and to be able to offer you, by means of web browsing analysis, the best options. If you continue browsing, we assume that you agree to their use. For further information, please click here.

ACEPTAR
Aviso de cookies