Option Pricing by the Nonrenewable Resource Extracting Firm Facing Output Price Uncertainty

John M. Hartwick

No 275197, Queen's Institute for Economic Research Discussion Papers from Queen's University - Department of Economics

Abstract: We establish a general preference for price uncertainty by the pricetaking, risk neutral, nonrenewable resource extracting firm with orthodox convex extraction costs. Option prices for delivery of a ton at a particular date in the future exceed the expected dollar return from the purchase of the option. The dependence of option price on initial stock size takes a simple form. Other comparative static results are reported.

Keywords: Demand and Price Analysis; Financial Economics (search for similar items in EconPapers)
Pages: 24
Date: 1985
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Persistent link: https://EconPapers.repec.org/RePEc:ags:queddp:275197

DOI: 10.22004/ag.econ.275197

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