Real Option in Urban Rapid Rail Transit PPP Project

To address a real issue in Beijing Urban Rail PPP project, an Excel model is built to solve the decision making problem of car park scale using real option theory. The model calculates the expected NPV of different options of building scale with real option embedded, avoiding the trouble of option pricing. The results show that real option can significantly optimize the decision making process of PPP projects. Especially when dealing with the problems raised by uncertainty in the process of negotiation, decision making and execution of a PPP project, real option can be more useful as it not only offers a way to improve the rationality of a decision, but also helps both of the private and the public sectors to reach an agreement.