Optimal Investment Management of Harbour Infrastructures. A Real Options Viewpoint

Most real problems need to be modelized using multiple state variables, combine multiple Real Options (very often american-style ones) and have complex cash flow functions. In this paper we present a new ScenariosMonte Carlo method to approach this kind of high-dimensional Real Options problems. The method is based on scenarios spaces built at each exercise date so that the payoff function can be modified at each scenario depending on the optionallity. Then scenarios are related in order to calculate the expected value of continuation. The main contribution of the algorithm is that it allows us to price american-style real options while solving decision problems of optimal investment policy.