Compound deferrable options for the valuation of multi-stage infrastructure investment projects

Yu Lin Huang*, Tsen Chin Lin

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

1 Scopus citations


Multi-stage planning is common for expanding infrastructure complexes or networks. Previous real-option studies developed a sequential compound call option (SCCO) for evaluating multi-stage infrastructure investment projects, including evaluating abandonment options during individual pre-scheduled investment stages. In practice, however, investment schedules involve risk and uncertainties forcing investors to change plans, raising an important issue regarding investors having more options at each commencement date. This study introduces a new model, the sequential compound deferrable call option (SCDCO), incorporating deferment options for each fold in an n-fold setting and generalizing the exercise of each deferment option into mn periods. A closed-form solution to the valuation of SCDCO is derived accordingly. A real-world case demonstrates that introducing deferment options increases project value, but the marginal benefit of increasing deferment time diminishes. The presence of dedicated assets for the usage of future expansions can also increase project value, but this increase is restricted by deferment options. Furthermore, the investment cost growth with an increase of deferment time rapidly decreases project value and vice versa. Inflation or deflation is therefore important to consider in deferment decisions. Finally, although deferment options only produce limited project value, they have the flexibility to manage risks, changes, and budgetary constraints.

Original languageEnglish
JournalConstruction Management and Economics
StateAccepted/In press - 2023


  • compound option
  • multi-stage investment
  • option to defer
  • project valuation
  • Real option


Dive into the research topics of 'Compound deferrable options for the valuation of multi-stage infrastructure investment projects'. Together they form a unique fingerprint.

Cite this