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A Real Options Approach to Hybrid Electric Vehicle Architecture Design for Flexibility

[+] Author Affiliations
Namwoo Kang, Alparslan Emrah Bayrak, Panos Y. Papalambros

University of Michigan, Ann Arbor, MI

Paper No. DETC2016-60247, pp. V02AT03A041; 10 pages
  • ASME 2016 International Design Engineering Technical Conferences and Computers and Information in Engineering Conference
  • Volume 2A: 42nd Design Automation Conference
  • Charlotte, North Carolina, USA, August 21–24, 2016
  • Conference Sponsors: Design Engineering Division, Computers and Information in Engineering Division
  • ISBN: 978-0-7918-5010-7
  • Copyright © 2016 by ASME


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.

Copyright © 2016 by ASME



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