A novel Z-number based Real Option (ZRO) model under uncertainty: Application in Public-Private-Partnership refinancing value evaluation

Public-Private-Partnership (PPP) refinancing is a complex activity with significant uncertainty, including environment-related and decision-maker-related uncertainty. Although value evaluation techniques, like Real Option (RO) and Fuzzy Real Option, have been developed to deal with uncertainty, the reliability of the used project information is ignored. This study aims to establish a refinancing value evaluation model considering both uncertainty and reliability. A Z-number based Real Option (ZRO) model is proposed using Z-numbers to represent the parameter values in the traditional RO model. In the Z-numbers, subjective evaluation of project parameters and information reliability are characterized. Moreover, a novel method is proposed to objectively evaluate the expert’s reliability by considering the expert’s multiple characteristics. The proposed model can determine refinancing values under various scenarios and reliability. A numerical case is used to validate the model performance. The results show that the refinancing value becomes higher when the information reliability increases. Changes in the underlying project value affect the refinancing option value most, while the impact of the annual project volatility is minimal. The proposed ZRO model could be applied to search for potential investors and as a bargaining tool.