Project CEMAPRE internal
| Title | Extensions in real options methodology: Applications to sustainable investments |
| Participants | Manuel Guerra, Alexandra Moura, Carlos Oliveira (Principal Investigator) |
| Summary | This project extends the project presented in 2025, in which we proposed a critical analysis of the methodologies used to evaluate investment projects. Although Net Present Value (NPV) remains the most widely used method among practitioners, the academic literature often regards real options as a superior approach because it incorporates firms’ flexibility to postpone decisions. As with financial options, real options aim to maximize the expected return of an investment project. In this project, we will investigate how alternative risk measures can be incorporated into the evaluation process to better capture project risk. A preliminary analysis replacing expected value with the median was conducted in: Andersen, S. et al. (2026) Investing in carbon transportation under volume uncertainty and scaling flexibility, Energy Economics, 153, 109064. doi:10.1016/j.eneco.2025.109064. We intend to extend this line of research by exploring additional risk measures, namely Value at Risk (VaR) and Conditional Value at Risk (CVaR). |