  Assessing climate risk and its potential impacts on our cities and economies
is of fundamental importance. Extreme weather events, such as hurricanes,
floods, and storm surges can lead to catastrophic damages. We propose a
flexible approach based on real options analysis and extreme value theory,
which enables the selection of optimal adaptation pathways for a portfolio of
climate adaptation projects. We model the severity of extreme sea level events
using the block maxima approach from extreme value theory, and then develop a
real options framework, factoring in climate change, sea level rise
uncertainty, and the growth in asset exposure. We then apply the proposed
framework to a real-world problem, considering sea level data as well as
different adaptation investment options for New York City. Our research can
assist governments and policy makers in taking informed decisions about optimal
adaptation pathways and more specifically about reducing flood and storm surge
risk in a dynamic settings.
