Real option analysis for emission reduction investment under the sulfur emission control

• DOI: 10.1016/j.seta.2021.101055
• Publication Date: 2021-04-01T09:51:43Z
• Authors: Yan Yue; Yirong Ying
• Keywords: Investment; Scenario analysis; Emission inventory

Abstract In order to reduce marine pollution, the International Maritime Organization proposes the latest global sulfur emission limits, which will have a huge impact on the global shipping industry. In this paper, the traditional DCF evaluation method is compared with the real option analysis methods such as BS model, binary tree model and Monte Carlo method, and the three schemes are analyzed and compared from the short-term and long-term perspectives respectively. The research results show that the real option method is a more realistic, reliable and promising method for evaluating emission reduction projects, especially in the case of uncertainties and volatility in the material resources market. The results of the study can be applied to the assessment of all items in the shipping industry that depend on changes in the price of the underlying asset over a specified period of time.