A real options approach to hybrid electric vehicle architecture design for flexibility

Namwoo Kang, Alparslan Emrah Bayrak, Panos Y. Papalambros

    Research output: Chapter in Book/Report/Conference proceedingConference contributionpeer-review

    10 Scopus citations

    Abstract

    Manufacturers launch new product models at various time increments to meet changing market requirements over time. At each design period, product design and price may change. While price decisions can be made at product launching time, redesign decisions must be made in advance. Real options theory addresses such time gap decisions. This paper presents a real options approach with a binomial lattice model to determine optimal design and price decisions for hybrid electric vehicles (HEVs) that maximize expanded net present value of profit under gas price uncertainty over time. Results confirm that we can obtain changing vehicle attributes by changing gear ratios rather than the architectures themselves due to high cost of redesigning. A parametric study examines the impact of gas price volatility on option decisions and shows that larger volatility of gas price causes the change option to be selected more frequently.

    Original languageEnglish
    Title of host publication42nd Design Automation Conference
    ISBN (Electronic)9780791850107
    DOIs
    StatePublished - 2016
    EventASME 2016 International Design Engineering Technical Conferences and Computers and Information in Engineering Conference, IDETC/CIE 2016 - Charlotte, United States
    Duration: 21 Aug 201624 Aug 2016

    Publication series

    NameProceedings of the ASME Design Engineering Technical Conference
    Volume2A-2016

    Conference

    ConferenceASME 2016 International Design Engineering Technical Conferences and Computers and Information in Engineering Conference, IDETC/CIE 2016
    Country/TerritoryUnited States
    CityCharlotte
    Period21/08/1624/08/16

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