Oil price volatility: A real option valuation approach in an African oil field

Fonseca, Marcelo Nunes; Pamplona, Edson de Oliveira; Valério, Victor Eduardo de Mello; Áquila, Giancarlo; Rocha, Luiz Célio Souza; Rotela, Paulo

doi:10.1016/j.petrol.2016.12.024

Cited by 30 publications

(17 citation statements)

References 38 publications

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“…In line with previous studies [22][23][24], we assume that the price of diesel P d,t is stochastic and follows the Geometric Brownian motion (GBM), as shown in Equation 2:…”

Section: Methodsmentioning

confidence: 99%

Diesel or Electric Jeepney? A Case Study of Transport Investment in the Philippines Using the Real Options Approach

Agaton

Guno

Villanueva

et al. 2019

WEVJ

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The Philippines is moving towards a more sustainable public transport system by introducing a public utility vehicle (PUV) modernization program with electric jeepneys (e-jeepneys) and modernized diesel jeepneys. Despite its potential to address problems related to air pollution, traffic congestion, dependence on fuel imports, and carbon emissions, transport groups show resistance to the adoption of the government program due to costs and investment risk issues. This study aims to guide transport operators in making investment decisions between the modernized diesel jeepney and the e-jeepney fleet. Applying the real options approach (ROA), this research evaluates option values and optimal investment strategies under uncertainties in diesel prices, jeepney base fare price, electricity prices, and government subsidy. The optimization results reveal a better opportunity to invest in the e-jeepney fleet in all scenarios analyzed. Results also show a more optimal decision strategy to invest in the e-jeepney immediately in the current business environment, as delaying or postponing investment may incur opportunity losses. To make the adoption of the e-jeepney more attractive to transport operators, this study further suggests government actions to increase the amount of subsidy and base fares, establish public charging stations, and continue efforts to rely on cleaner, cheaper, and renewable sources of electricity.

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“…In line with previous studies [22][23][24], we assume that the price of diesel P d,t is stochastic and follows the Geometric Brownian motion (GBM), as shown in Equation 2:…”

Section: Methodsmentioning

confidence: 99%

Diesel or Electric Jeepney? A Case Study of Transport Investment in the Philippines Using the Real Options Approach

Agaton

Guno

Villanueva

et al. 2019

WEVJ

View full text Add to dashboard Cite

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“…Traditional investment philosophy holds that high uncertainty is likely to cause investment losses to a large extent which somewhat ignores the investor's ability to recognize and utilize opportunities for value added of the project [36]. In the viewpoint of real option, the greater the project uncertainty, the greater the potential opportunity value of the project [37,38]. If the managerial flexibility can be fully used, higher value can be created.…”

Section: Investment Valuation Methods Of Ppp Projectmentioning

confidence: 99%

Investment Valuation Model of Public Rental Housing PPP Project for Private Sector: A Real Option Perspective

et al. 2019

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Public rental housing (PRH) in China is mainly invested by the government at present. The huge capital demand brings it great pressure and a series of problems appear meanwhile. Public–private partnership (PPP) has been regarded as a way to solve the funding dilemma of PRH. However, the PRH project is not attractive for the private sector since the expected profit seems unsatisfactory based on traditional valuation methods. To improve this situation, this paper proposed an investment valuation model from a real option perspective. For the private sector, three types of options, including deferral option, abandonment option, and expansion option, were identified during the concession period of a PRH PPP project. On this basis, a two-stage binomial tree model was constructed for estimating the investment value. Then, the proposed model was tested in a hypothetical example of a typical PRH PPP project in Chongqing, China. The result shows that great potential value can be excavated through flexible strategies and adaption to uncertainties. This paper provides a deep analysis on the gaps of the real option application in public housing investment assessment, which is meaningful for improving the supply efficiency and financial sustainability of PRH.

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“…In line with the previous studies, we assume that the price of diesel is stochastic and follow geometric Brownian motion (GBM) [20][21][22]. Dixit and Pindyck [18] present the stochastic price process as…”

Section: Stochastic Prices and Monte Carlo Simulationmentioning

confidence: 99%

A real options approach to renewable electricity generation in the Philippines

Agaton

Karl

2018

Energ Sustain Soc

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Background: The Philippines is making a significant stride to become energy independent by developing more sustainable sources of energy. However, investment in renewable energy is challenged by competitive oil prices, very high investment cost for renewable energy, and high local electricity prices. This paper evaluates the attractiveness of investing in renewable energy sources over continue using oil for electricity generation. Methods: This paper uses the real options approach to analyze how the timing of investment in renewable energy depends on volatility of diesel price, electricity price, and externality for using oil. Results: The result presents a positive net present value for renewable energy investment. Under uncertainty in oil prices, dynamic optimization describes how waiting or delaying investment in renewables incurs loses. Decreasing the local electricity price and incorporating negative externality favor investment in renewable energy over continuing the use of oil for electricity generation.

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Oil price volatility: A real option valuation approach in an African oil field

Cited by 30 publications

References 38 publications

Diesel or Electric Jeepney? A Case Study of Transport Investment in the Philippines Using the Real Options Approach

Diesel or Electric Jeepney? A Case Study of Transport Investment in the Philippines Using the Real Options Approach

Investment Valuation Model of Public Rental Housing PPP Project for Private Sector: A Real Option Perspective

A real options approach to renewable electricity generation in the Philippines

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