What is it about?

The study first describes the process involved in developing the financial strategy for revitalization of Rio de Janeiro’s central city without Monte Carlo Simulation (MCS) . Then, it shows how the MCS could have been integrated into this process and evaluates its potential impacts on the quality of risk analysis. In other words, the study “retrofits” MCS on a successfully completed financial prefeasibility study to assess its usefulness as a heuristic tool.

Featured Image

Why is it important?

The study finds that, if fully integrated into the decision-making process, MCS can serve as a heuristic tool that helps team members to better understand risks by generating forecasts of land value as a probability distributions. By showing these distributions for the forecasted variables, MCS integrates elements of modern risk analysis into financial model development in a cost-effective manner. In this way, MCS can help analysts to understand the financial risks of large-scale urban development projects involving value capture, even in the prefeasibility stage.


Many studies document the financing gap for the infrastructure investments needed for efficient, equitable, environmentally sustainable and fiscally responsible development projects. Capture of the value generated by government interventions (infrastructure investment and land use regulations) can help close this financing gap. To be approved and executed, such projects must have viable financial strategies (i.e., they must be bankable). Officials of national and multilateral development banks and private financial institutions often lament the lack of such bankable projects. Although the engineering for the civil works may be viable, the financial engineering may not be. The prefeasibility phase of the financial analysis involves deciding whether the more costly feasibility analysis is warranted. The time and budget constraints for the prefeasibility studies are often tight, the data imperfect, and the government officials may lack financial training. This study showed how we dealt with these constraints for the revitalization of Rio de Janeiro’s center city, and how MCS might have assisted us in this.

David Vetter

Read the Original

This page is a summary of: Monte Carlo simulation in a financial strategy for urban development using land value capture, Journal of Property Investment & Finance, July 2019, Emerald, DOI: 10.1108/jpif-03-2019-0032.
You can read the full text:




The following have contributed to this page