Hard coal project valuation based on real options approach: multiplicative vs. arithmetic stochastic process

Saługa Piotr W. () and Kamiński Jacek ()
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Saługa Piotr W.: Professor, AGH University of Science and Technology, Department of Energy Management, Faculty of Management, Krakow, Poland
Kamiński Jacek: Professor, Mineral & Energy Economy Research Institute, Polish Academy of Sciences, Department of Policy and Strategic Research, Division of Energy Economics, Kraków, Poland

Gospodarka Surowcami Mineralnymi / Mineral Resources Management, 2016, vol. 32, issue 1, 25-40

Abstract: Precise valuation of the economic efficiency of risky investment projects in the mineral sector has a direct impact on the range of future investments. Since the mid-90s, a number of enterprises have also been giving increased attention to the valuation of managerial flexibility that cannot normally be estimated with classical discounted cash flow (DCF) analysis. This has been the result of a development in the real options analysis (ROA) and the simplification of its algorithms, most of which have been achieved through: ♦ incorporating lattice models,♦ introducing a single uncertain project parameter (gross present value, PV) as an underlying instrument,♦ assuming that the underlying asset follows the multiplicative stochastic process,♦ introducing the ‘marketed asset disclaimer’ (MAD) assumption.

Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:vrs:gosmin:v:32:y:2016:i:1:p:25-40:n:6

DOI: 10.1515/gospo-2016-0006

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