Application of Real Options Method to the Location of Light Rail Stations

  • Baiherula Abula

Student thesis: Master's Thesis


Given the deepening awareness of limitedness of fossil fuel reserves as well as environmental consequences of consuming it, the increasing appetite for improved and efficient public transportation infrastructure still persists worldwide. However, there is a paucity of understanding about the underlying uncertainties and their significances on the performance of these infrastructure projects given the fact that performance of many rail transit projects deviate largely from what is initially anticipated, which in many cases, takes the form of cost overrun or low-patronage. This research explores the possibility of improving the light rail transportation performance by incorporating flexibility in the development of stations, which is based on recognition of the intrinsic uncertainties underlying the transportation demand by going through the four step model (FSM). It does so using real options approach, which provides opportunities to manipulate the distribution of the value at risk and value of gain. Decision Tree Analysis (DTA) is used to calculate the value of introducing flexibility. Using case study approach, the proposed model is applied for a station location on Dubai Metro Purple Line. The results suggests that recognizing the major uncertainties at an early stage and incorporating flexibility into the system design accordingly pays off under certain circumstances.
Date of Award2014
Original languageAmerican English
SupervisorAbdulla Galadari (Supervisor)


  • Transportation; Light Rail Transportation; Four Step Model (FSM); Decision Tree Analysis (DTA); Dubai Metro.

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