Institute of Transportation, MOTC

        Bad weather situations disturb people’s daily schedules, but also cause more costs for travelers. For the offshore island transport system, the weather is one of the major uncertain factors affecting travel services. For example, in Taiwan during fog seasons, the transportation between offshore islands and the main island could be risky. This study values the risk of weather uncertainty by the advantage of real options. We, taking Taiwan’s situation as an example, resolve the traffic inconvenience caused by weather in offshore island regions. The low visibility could lead to the shut-down of aircraft and vessel services. We design an option product for the travelers to hedge their travel risk based on Black-Scholes model. In this study, we proposal the computational framework and compute the price of risk.