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Valuation of a hypothetical mining project under commodity price and exchange rate uncertainties by using numerical methods

Behnam Aminrostamkolaee (), Jeffrey S. Scroggs, Matin Sadat Borghei, Safdari-Vaighani, Ali, Teymour Mohammadi and Mohammad Hossein Pourkazemi

Resources Policy, 2017, vol. 52, issue C, 296-307

Abstract: One of the goals presented here is the use of a radial basis function (RBF) method to approximate the numerical values of a gold mining project. RBFs have many attractive features compared to implicit finite differences method (FDM) and explicit FDM. They are mesh-free, computationally more efficient in high dimensions, and very accurate. In other words, the model is more comprehensive, and results are more accurate compared to the previous works. This paper compares accuracy of the RBF method with that of the implicit method (FDM) in this case study. The results indicate that convergence order of the RBF is higher than that of the implicit method. Also, this paper compares the results of the RBF method with those of implicit method for various scenarios.

Keywords: Discounted cash flow; Real options valuation; Geometric Brownian Motion; Commodity price; Volatility; Implicit FDM and explicit FDM; Radial basis function; Exchange rate (search for similar items in EconPapers)
JEL-codes: G13 Q3 C02 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:jrpoli:v:52:y:2017:i:c:p:296-307