A dynamic model for valuing flexible mining exploration projects under uncertainty

Miranda, Oscar; Brandão, Luiz Eduardo Teixeira; Lazo, Juan G. Lazo

doi:10.1016/j.resourpol.2017.04.002

Cited by 12 publications

(10 citation statements)

References 23 publications

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“…That way, we offered more options to expand the possible manager decisions. In order to obtain the real probabilities of the options being exercised, we executed the models using a risk-adjusted rate, that is, the opportunity cost rate of the capital of investment projects, instead of the risk-free rate, according to [81]. We determined the value of real options by maximizing the difference between the value of the underlying asset and the exercise price of the respective option and zero.…”

Section: Binomial Options Pricing Modelmentioning

confidence: 99%

Investments in Pinus elliottii Engelm. Plantations: Real Options Analysis in Discrete Time

Martins

Silva

Munis

et al. 2022

Forests

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Background: The commonly used methods for the financial evaluation of plantation forest investment projects do not incorporate uncertainties and ignore the value related to flexibility. The real options analysis makes it possible to capture these values in investment projects, increasing their value and return. Despite this, studies involving real options in forest investment projects are scarce, specifically those related to Pinus spp. Therefore, this study aimed to: (a) analyze whether the real options analysis adds value to investment projects of Pinus elliottii Engelm. plantations; and (b) make the real options analysis more accessible to forest managers and potentially increase its use in the investment projects of Pinus spp. plantations. Methods: We evaluated two investment projects in P. elliottii plantations in southern Brazil, which differed in the way of obtaining the land for planting: with lease or purchase of land on a planning horizon of 21 years. In the real options analysis, we used deferral, expansion, and abandonment. Results: Individually, the deferral, expansion, and abandonment options add value to investment projects in Pinus elliottii plantations. The option to expand the forested area is one that adds the most value to the investment project with land lease. In the investment project with land purchase, it is abandonment. Conclusions: Investment projects in Pinus elliotti plantations that contemplate the land purchase analyzed through the real options analysis present higher financial returns than those that consider land lease, inverting the result provided by the traditional analysis.

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Section: Binomial Options Pricing Modelmentioning

confidence: 99%

Investments in Pinus elliottii Engelm. Plantations: Real Options Analysis in Discrete Time

Martins

Silva

Munis

et al. 2022

Forests

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“…Several authors have used in many real options applications. Several authors have applied this model to infrastructure projects ( applied this model to infrastructure projects (Garvin & Garvin & Cheah, 2004Cheah, 2004;Iyer & Sagheer, 2011Iyer & Sagheer, 2011;Marques, Brandão, Marques, Brandão, & Gomes, 2019& Gomes, 2019;Oliveira, Couto, & Pimentel, 2020Oliveira, Couto, & Pimentel, 2020;Rakić & Rađenović, 2014Rakić & Rađenović, 2014, renewable energy ( ), renewable energy (Dalbem, Dalbem, Brandão, & Gomes, 2014Brandão, & Gomes, 2014;Santos, Soares, Mendes, & Santos, Soares, Mendes, & Ferreira, 2014Ferreira, 2014;Wesseh & Lin, 2015 Wesseh & Lin, 2015;;Zhang, Zhou, & Zhang, Zhou, & Zhou, 2014Zhou, 2014, mining ( ), mining (Miranda, Brandão, & Lazo, 2017Miranda, Brandão, & Lazo, 2017, ), and other fields of research. and other fields of research.…”

Section: Real Option Valuementioning

confidence: 99%

A Tutorial for Modeling Real Options Lattices from Project Cash Flows

2021

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Context: several methods for evaluating real options have been extensively studied and published. But recombining binomial trees, known as lattices, are perhaps one of the most practical and intuitive approaches to model uncertainty and price project managerial flexibilities for real options applications. Although the Cox, Ross, and Rubinstein (1979) lattice model is simple to implement for financial options, modeling real options lattices requires a different approach such as the one proposed by Copeland and Antikarov (2001), which considers project cash flows as dividends in the lattice model. Objective: in this tutorial, we propose a code in an open-source software with intuitive guidelines to help researchers and practitioners model real options lattices from project cash flows. Method: our code considers the correct project’s volatility estimation, dividend yield modeling, and lattice building. Results: the results show how real options can affect the value of projects. Conclusions: as a contribution, this tutorial provides a simple mechanism for analyzing investment opportunities in projects that have uncertainty and flexibility.

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“…The investment scheme of renewable energy projects is different from that of the traditional project (Miranda et al, 2017;G omez-M arquez et al, 2011) due to its subsidy way (Chen et al, 2017). First, renewable energy programs are of good flexibility resulting from the market factors, such as the market fluctuation of renewable energy prices, the initiative considerations (e.g., the managerial motivation) (Nie et al, 2018), and the government factors (e.g., the uncertainty of the policy) about the renewable policy.…”

Section: Introductionmentioning

confidence: 99%

Analysis on one-off subsidy for renewable energy projects based on time value of money

Yang

Jiang

Chen

et al. 2019

Journal of Renewable and Sustainable Energy

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Due to the incentive policies of governments, renewable energy plays an increasingly important role in the global energy supply system. Among the subsidy schemes, the one-off subsidy is mainly applied in the projects with a long investment period where the time value of money cannot be ignored due to the long payback period. In this article, a microeconomic model of enterprises with a discount factor is established. The impact of the one-off subsidy by the government is discussed in different periods. The results show that only when the investment period is long enough, the government would give the enterprise one-off subsidy and the given subsidy is positively correlated with the investment period. Besides, the enterprise is more willing to invest in the project when getting close to the end of the investment period and the subsidy increases with the growth of capital-output elasticity. This article analyzes the optimal period of giving the one-off subsidy under the condition of different internal rates of return (IRRs). Based on the extended framework of subsidy analysis by game theory, it is found that if IRR of the enterprise is larger than that of the government, the subsidy is suggested to be given at the beginning of the project.

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A dynamic model for valuing flexible mining exploration projects under uncertainty

Cited by 12 publications

References 23 publications

Investments in Pinus elliottii Engelm. Plantations: Real Options Analysis in Discrete Time

Investments in Pinus elliottii Engelm. Plantations: Real Options Analysis in Discrete Time

A Tutorial for Modeling Real Options Lattices from Project Cash Flows

Analysis on one-off subsidy for renewable energy projects based on time value of money

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