Hard coal project valuation based on real options approach: multiplicative vs. arithmetic stochastic process
More details
Hide details
AGH University of Science and Technology, Department of Energy Management, Faculty of Management, Krakow, Poland
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;32(1):25–39
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. Unfortunately, in most cases, models constructed on the abovementioned assumptions and modifications are not consistent with real projects. Some analysts recognize that project PVs might not follow the multiplicative process, which could have a direct impact on the project’s value. In order to improve the MAD approach, the paper proposes a modified model where the multiplicative tree is replaced with an additive one. In addition, methods of ‘additive volatility’ calculation and ‘dividend’ adjustments were suggested.
Wycena projektu węglowego z wykorzystaniem analizy opcji rzeczowych w schemacie iloczynowego i arytmetycznego procesu stochastycznego
górniczy projekt inwestycyjny, wycena projektu, opcje rzeczowe, proces stochastyczny
Wycena efektywności ekonomicznej projektów inwestycyjnych w sektorze surowców mineralnych – charakteryzujących się zazwyczaj wysokim poziomem ryzyka – bezpośrednio wpływa na podejmowanie decyzji w zakresie realizacji przyszłych inwestycji. W ostatnich latach coraz większa liczba spółek dostrzega – w odniesieniu do dylematów rozstrzygania procesów decyzyjnych – znaczenie możliwości elastycznego reagowania menadżerów na zmiany zachodzące w otoczeniu przedsiębiorstw i w nich samych (elastyczność decyzyjna). Znaczenie to wyraża się w konkretnych kwotach pieniężnych – niestety, stosowana powszechnie w procesach wyceny przedsięwzięć analiza zdyskontowanych przepływów pieniężnych (DCF) oszacowania wartości elastyczności decyzyjnej nie umożliwia. Wycenę taką umożliwia natomiast zespół technik występujących w obrębie tzw. analizy opcji rzeczowych (real options analysis, ROA) [...].
Bachelier, L. 1900. “Theory of Speculation” (in French: “Théorie de la speculation”). Annales Scientifiques de l’Ecole Normale Supérieure 17, pp. 21–86.
Black, F. and Scholes, M. 1973. “The Pricing of Options and Corporate Liabilities” Journal of Political Economy 81, Chicago, Illinois.
Copeland, T. and Antikarov, V. 2001. Real Options: A Practitioner’s Guide. Texere, Thompson Corporation, pp. 370.
Cox, J.C., Ross, S.A. and Rubinstein, M. 1979. “Option Pricing: a Simplified Approach”. Journal of Financial Economics Vol. 7, No. 3, pp. 229–263.
Guj, P. 2011. A Practical Real Option Methodology for the Evaluation of Farm-In/But Joint Venture Agreements in Mineral Exploration, Resources Policy Vol. 36. pp. 80–90.
Dehghani, H. Ataee-pour, M. and Esfahanipour, A. 2014. Evaluation of the Mining Projects Under Economic Uncertainties Using Multidimensional Binomial Tree. Resources Policy Vol. 39, no. 1, pp. 124–133.
Haahtela, G.J. 2010. Recombining Trinomial Tree for Real Option Valuation with Changing Volatility. Aalto University, Working Paper Series, pp. 1–25.
JORC, 2012. Australasian Code for Reporting of Exploration Results, Mineral Resources and Ore Reserves (The JORC Code) [online], http://www.jorc.org (The Joint Ore Reserves Committee of The Australasian Institute of Mining and Metallurgy, Australian Institute of Geoscientists and Minerals Council of Australia).
Kamiński, J. 2009. The impact of liberalisation of the electricity market on the hard coal mining sector in Poland, Energy Policy Vol. 37, Issue 3, pp. 925–939.
Kamiński, J. 2011. Market power in a coal-based power generation sector: The case of Poland. Energy Vol. 36, Issue 11, pp. 6634–6644.
Knopf, P.M. and Teall, J.L. 2015. Risk Neutral Pricing and Financial Mathematics: A Primer. Academic Press, Elsevier, 333 pp.
Miranda, O. and Brandão, L.E. 2013. A Real Option Model To Value An Exploration Mining Project: An Application. [Online] Availade at: http://www.realoptions.org/ope... [Accessed: 20.01.2016].
Mun, J. 2006. Real Options Analysis – Tools and Techniques for Valuing Strategic Investments and Decisions. Wiley, Hoboken, New Jersey, pp. 290.
Osborne, M.F.M. 1959. Brownian Motion in the Stock Market. Operations Research, 7, 145.
Osborne, M.F.M. 1962. Periodic Structure in the Brownian Motion of Stock Prices. Operations Research, 10, 345.
Poitras, G. 1998. Spread Options, Exchange Options and Arithmetic Brownian Motion. J. Futures Markets 18, 487–517.
Polish Geological and Mining Law, Act of 9 June 2011.
Samuelson, P.A. 1965. A Rational Theory of Warrant Pricing. Industrial Management Review. In Collected Works of Paul Samuelson, Vol. 2, MIT Press.
Saługa, P. 2011. Managerial Flexibility in Mineral Project Valuation (In Polish: Elastyczność decyzyjna w procesach wyceny projektów geologiczno-górniczych). Studia, Rozprawy, Monografie nr 167, Wyd. IGSMiE PAN, 269 pp.
Smith, L.D. 1994. Discount Rates and Risk Assessment in Mineral Project Evaluations. Transactions Institution of Mining & Metallurgy (Sect. A: Mineral Industry).
Smith, L.D. 2000. Discounted Cash Flow Analysis and Discount Rates. Special Session on Valuation of Mineral Properties Mining Millennium 2000, March 8, Toronto, Ontario.
Trojanowska, M. and P.M., Kort. 2005. Arithmetic Brownian Motion and Real Options. [In:] Proceedings of the 9th Annual International Conference ‘Real Options – Theory meets Practice’, Paris.