Monte Carlo valuation of natural gas investments

Luis M. Abadie and Jose Chamorro

Review of Financial Economics, 2009, vol. 18, issue 1, 10-22

Abstract: In this evaluation of energy assets related to natural gas, our particular focus is on a base load natural gas combined cycle power plant and a liquefied natural gas facility in a realistic setting. We also value several American-type investment options following the least squares Monte Carlo approach. We calibrate mean-reverting stochastic processes for gas and electricity prices by using data from NYMEX NG futures contracts and the Spanish wholesale electricity market, respectively. Additional sources of uncertainty concern the initial investment outlay, or the option's time to maturity, or the cost of CO2 emission permits.

Keywords: Real; options; Power; plants; Stochastic; revenues; and; costs; CO2; allowances; LNG (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (18)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:revfin:v:18:y:2009:i:1:p:10-22

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