 On a multidimensional oil exploration problemLakdere Benkherouf and Susan Pitts International Journal of Stochastic Analysis, 2005, vol. 2005, 1-22 Abstract: This paper is concerned with optimal strategies for drilling in an oil exploration model. An exploration area contains n 1 large and n 2 small oilfields, where n 1 and n 2 are unknown, and represented by a two-dimensional prior distribution π . A single exploration well discovers at most one oilfield, and the discovery process is governed by some probabilistic law. Drilling a single well costs c , and the values of a large and small oilfield are v 1 and v 2 respectively, v 1 > v 2 > c > 0 . At each time t = 1 , 2 , … , the operator is faced with the option of stopping drilling and retiring with no reward, or continuing drilling. In the event of drilling, the operator has to choose the number k , 0 ≤ k ≤ m ( m fixed), of wells to be drilled. Rewards are additive and discounted geometrically. Based on the entire history of the process and potentially on future prospects, the operator seeks the optimal strategy for drilling that maximizes the total expected return over the infinite horizon. We show that when π ≻ π ′ in monotone likelihood ratio, then the optimal expected return under prior π is greater than or equal to the optimal expected return under π ′ . Finally, special cases where explicit calculations can be done are presented. Date: 2005 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:hin:jnijsa:601357 Access Statistics for this article More articles in International Journal of Stochastic Analysis from Hindawi |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.