Operations Research, Systems Engineering and Industrial Engineering Commons^™

Integration Of A Real Option Of An Environmental Project, Qi Yang

Department of Industrial and Management Systems Engineering: Dissertations, Theses, and Student Research

This thesis explores a problem of how to evaluate environmental projects under the Carbon Cap-and-Trade Scheme (CCTS) from the perspective of an individual firm. The focus is the integration of a real option approach for project investment timing and financial carbon option approach for carbon credit management. The real option is for a mid or long term decision on when to invest on the environmental project, and the financial option is for a supplementary decision to hedge short-term residue risks. Two uncertainties (the carbon price and carbon credit demand) are considered, and their changes are represented by a lattice of …