Title: An alternative valuation of public-private partnerships by using the Black-Scholes model: the Portuguese highway case

Authors: Victor Barros; David Pedra Costa; Joaquim Miranda Sarmento

Addresses: ADVANCE/CSG, ISEG – Lisbon School of Economics and Management, Universidade de Lisboa, Rua Miguel Lupi, 20, 1249-078 Lisbon, Portugal ' ADVANCE/CSG, ISEG – Lisbon School of Economics and Management, Universidade de Lisboa, Rua Miguel Lupi, 20, 1249-078 Lisbon, Portugal ' ADVANCE/CSG, ISEG – Lisbon School of Economics and Management, Universidade de Lisboa, Rua Miguel Lupi, 20, 1249-078 Lisbon, Portugal

Abstract: This study evaluates Portuguese highway PPPs' initial valuation using real options methods to assess the potential mispricing of these projects that is model dependent. Our findings suggest that some of these PPPs could be completed without resorting to outside financing for the initial investment by selling a right to ownership of projects. This different approach to real investments using options could also enable hedging future operational risks without changing the project operationally. Overall, our study addresses a relevant policy implication - whether governments should protect their interest by adopting PPP valuation as real options.

Keywords: public private partnerships; concessions; valuation; Black and Scholes model.

DOI: 10.1504/GBER.2022.10045235

Global Business and Economics Review, 2022 Vol.26 No.2, pp.135 - 151

Received: 19 Feb 2021
Accepted: 11 May 2021
Published online: 21 Feb 2022 *

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