Road Pricing Through Financial Derivatives Based on Travel Time
Travel time derivatives are introduced as financial derivatives based on road travel times. This is proposed as a more fundamental approach to value pricing because it conduct road pricing based on not only level but also volatility of travel time. The paper addresses (a) the motivation for introducing such derivatives, (b) the potential market, and (c) the product design and (d) modeling of travel time and the corresponding pricing schemes. Particularly, pricing schemes are designed based on the travel time data captured by real time sensors, which are modeled as continuous time stochastic processes. The authors introduce the methodology to bridge usual discrete time series model of travel time with continuous time auto regression moving average (CARMA) models. The latter can better capture the volatility of the travel time processes and facilitate detailed study its nature. The calibration of such model is conducted via a hidden factor model, which described the dynamics of travel time processes. The risk neutral pricing principle is used to generate the derivative price, with reasonably designed procedures to identify the market value of risk so that conjestion pricing can be linked to financial market directly.
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Supplemental Notes:
- This paper was sponsored by TRB committee ABE25 Standing Committee on Congestion Pricing.
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Corporate Authors:
500 Fifth Street, NW
Washington, DC United States 20001 -
Authors:
- Wan, Ke
- Kornhauser, Alain
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Conference:
- Transportation Research Board 96th Annual Meeting
- Location: Washington DC, United States
- Date: 2017-1-8 to 2017-1-12
- Date: 2017
Language
- English
Media Info
- Media Type: Digital/other
- Features: Figures; References; Tables;
- Pagination: 36p
- Monograph Title: TRB 96th Annual Meeting Compendium of Papers
Subject/Index Terms
- TRT Terms: Assets; Finance; Road pricing; Stochastic processes; Travel time; Value of service pricing
- Identifier Terms: ARMA (Auto-Regressive Moving Average model)
- Uncontrolled Terms: Derivative securities
- Subject Areas: Finance; Highways; Operations and Traffic Management;
Filing Info
- Accession Number: 01626398
- Record Type: Publication
- Report/Paper Numbers: 17-00895
- Files: TRIS, TRB, ATRI
- Created Date: Feb 23 2017 2:58PM