Investment in mineral resources development optio

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Mineral Resources Development and Investment Analysis of Option Pricing

1) gives the random walk equation. Another constraint is l (5) derivation slightly, 8 to convenience yield, can be expressed as a = p-ct. The conclusion is that the object value of the project analysis, in practice the geometric Brownian motion V is difficult to subject to the assumption that, because the items in the actual loss is there, and the geometric Brownian motion is assumed lognormal distribution point in time , which always must be positive. To this end, the author at this time to amend the above formula: First, assuming the project price is P, is subject to the geometric Brownian motion of the random variable (the drift rate and volatility, respectively, and a mouth), the project output was a single, annual operating costs for the C. Second, the project value V is decomposed into P / (pa) and a C / p of two parts, P / (pa) is the total receipts of the project life cycle, C / p is the life of the project total cost of operating expenses. Suppose further that the business can not open and close with the decision to take price fluctuations, then the co expenditure will be cut, that once implemented, followed by an infinite sequence that is C, the cash outflow, so it can with the C / p bundled as spending the same nature. As a result, the above formula (3) can be transformed into: blue = c + = boat (P ~) (n (6) P is the timing of the project under the conditions of optimal investment price, that is, when the price of investment can achieve P best value. 4 a calculation example of a need to invest 500 million mine construction, ignoring the construction period, the mine after the completion of a unit of production of metal products, annual operating expenses of 300 million, their prices subject to geometric Brownian drift equation The relevant parameters are a = 0,. = 0.2 port = 01 set, according to (4), (5) can be calculated: 0l = 3291 which according to (6) can be calculated: P = x ( 0.1_o) × (S00 A): 502.77 that is, when the metal prices per unit of 5.0277 million yuan investment in the best time to implement the results of this calculation may make people feel very surprised, because, according to the conventional DCF method calculated that if prices remain constant, then it just more than 350 million, you can make NPV greater than zero. In other words, as long as the price of more than 350 million investment is cost-effective implementation, and theoretical analysis of option As a result, the critical price of investment 502 million, compared to the previous value of forty per cent higher. This is considered the change in risk factors. commodity prices volatile, but also for its many mines Most of irreversible investment in infrastructure, and Once in the production of difficult to be temporarily closed due to low prices, so the risk is greater and therefore the investment required to implement a high price to gold , if l g lO dollar prices can make it exactly zero NPV projects, then the price may be until l4 dollar investment is appropriate when one gram, which is what people often say \. \J] technical and economic, j995, (11) E3] MArmstrong.AGalli, Optionprcing: h ... approachtovalringmineproj ~ t [M], CIMBulletin.April1997.
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