Hedging Infrastructure Projects against COVID-19 type Disruptive Events with Term Extension Clause
Divisão: FIN - Finanças
Tema de Interesse:
Investimentos e Apreçamento de Ativos
Autores
Alessio Stanganello
Roberta Pellegrino
Carlos de Lamare Bastian Pinto
LUIZ EDUARDO TEIXEIRA BRANDAO
Naielly Lopes Marques
Resumo
Infrastructure concessions, especially for transport projects, are of long-term investments subject to demand volatility. Yet disruptive events, such as the Covid-19 pandemic, may negatively affect demand for traffic infrastructure, thus impacting the cash flows of such projects and decreasing the return of the concessionaire. Historical demand series shows that these events are more frequent than it would appear, but their effects are usually transitory. In the analysis of passenger demand series in major airports in the United States, Europe, and Brazil, it is apparent how the Covid-19 pandemic affected demand for a period of time. Nonetheless, after the second year of the pandemic, demand resumed its historical levels with an observable time lag, but at a fast pace. We propose an innovative supporting mechanism called Minimum Revenue Guarantee with the Term Extension Clause (MRG-TEC) to hedge the effects of such disruptive events. It combines MRG with a concession time-term extension proportional to the observed reduction in the demand and the length of this reduction, modeling it as two European Call Options. Traffic demand is modeled as a mean reversion to which negative Poison jumps are added to simulate such disturbances. Results are then compared to the case without real options.
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