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Optimizing Two-Stage Modular Wastewater Plant Expansions Using Numerical Methods and Simulation in A Real Options Context

Y. Lawryshyn1*, B. Zhang1, and M. Davison2

  1. Department of Chemical Engineering and Applied Chemistry, University of Toronto, Toronto, M5S 3E5, Ontario, Canada
  2. Departments of Applied Mathematics, Western University Canada, London, N6A 5B7, Ontario, Canada

*Corresponding author. Tel.: +1-416-946-0576; fax: +1-416-978-8605. E-mail address: (Y. Lawryshyn).


The optimization of a modular expansion strategy, while extremely relevant in the industrial setting, requires sophisticated numerical modeling for the valuation of even simple scenarios. In this work, we develop both a numerical model and a model based on Monte-Carlo simulation utilizing real options, to provide a methodology for optimizing a plant expansion strategy. Our case study is associated with a wastewater treatment plant expansion; however, the methodologies developed here can be extended to many industrial settings, including mining, oil and gas, and manufacturing. The value of the Monte-Carlo simulation is that it is much more easily understood by practitioners and more versatile in that it can be used to model non-standard processes. The results of both of our models match consistently, essentially validating the Monte-Carlo technique.

Keywords: real options, optimization, modular expansion, wastewater treatment, Monte-Carlo simulation

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