OPTIMAL TIMING OF A MODULAR EXPANSION OF A WASTEWATER TREATMENT PLANT
We consider a municipality faced with the question of how big to make their new wastewater treatment facility to meet the demand of 10% expected growth in the number of new connections. Previously, we developed a real options framework for determining optimal plant size and showed that the model takes on the form of an Asian option. Furthermore, it was shown that if the connection rate growths are closely correlated with the market growth, then the penalty costs associated with having insufficient capacity to treat the wastewater can be effectively hedged, significantly reducing overall expected costs. In this study, we utilize an approximate analytical solution and optimize the plant size of a staged / modular expansion with optimal timing.
Lecture Notes in Management Science (2011) Vol. 3: 233-246
3rd International Conference on Applied Operational Research, Proceedings
© Tadbir Operational Research Group Ltd. All rights reserved.
ISSN 2008-0050 (Print)
ISSN 1927-0097 (Online)
· Cost Description
· Model Development
· Summary Of The Non-Staged Plant Expansion
· Analytical Approximation
· Staged Optimization Model
· Utilization Of The Finite Difference Method To Determine Optimal Timing