Valuation of an oil field using real options and the information provided by term structures of commodity prices
Lautier, Delphine (2003), Valuation of an oil field using real options and the information provided by term structures of commodity prices, 7th Annual Real Options Conference, 2003-07, Washington, États-Unis
TypeCommunication / Conférence
Conference title7th Annual Real Options Conference
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Abstract (EN)This article emphasises that the information provided by term structures of commodity prices has an influence on the real option value and on the investment decision. We exhibit first of all the analysis framework: the evaluation of an oil field. We suppose that a single source of uncertainty - the crude oil price - affects the investment decision. We also present the two term structure models used to represent the dynamic behaviour of this price and to evaluate the net cash flows of the field. Then we present the real options valuation method. Lastly, simulations illustrate the sensibility of the real options to the term structure of commodity prices, and we analyse the investment signals given by the optional method. Our principal conclusions are twofold. Firstly, to understand the behaviour of the real option, it is essential to take into account the information given by the term structure of prices. Secondly, for some specific price curves, the investment signal associated with the optional method does not differ from the one given by the net present value.
Subjects / KeywordsTerm structure; Oil field; Real option; Crude oil; Convenience yield; Stochastic Models
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The Kalman filter in finance: An application to term structure models of commodity prices and a comparison between the simple and the extended filters Lautier, Delphine (2002) Document de travail / Working paper