Real Options Valuation
The Importance of Stochastic Process Choice in Commodity Price Modelling
eBook
Real Options Valuation
The Importance of Stochastic Process Choice in Commodity Price Modelling
The Author shows that modelling the uncertain cash flow dynamics of an investment project deserves careful attention in real options valuation. Focusing on the case of commodity price uncertainty, a broad empirical study reveals that, contrary to common assumptions, prices are often non-stationary and exhibit non-normally distributed returns. Subsequently, more realistic stochastic volatility, jump diffusion, and Lévy processes are evaluated in the context of a stylised investment project. The valuation results suggest that stochastic process choice can have substantial implications for valuation results and optimal investment rules.
Max Schöne is a Ph.D. student at the WHU - Otto Beisheim School of Management with a research focus on real options valuation and decision making under uncertainty.
Max Schöne is a Ph.D. student at the WHU - Otto Beisheim School of Management with a research focus on real options valuation and decision making under uncertainty.
1;Foreword;6 2;Table of contents;7 3;List of figures;9 4;List of tables;10 5;List of abbreviations;11 6;1 Introduction;13 6.1;1.1 Problem and objective;14 6.2;1.2 Course of investigation;16 7;2 Data;18 8;3 Empirical analysis;21 8.1;3.1 Stationarity of prices;21 8.2;3.2 Analysis of returns;34 8.2.1;3.2.1 Stylised properties;35 8.2.2;3.2.2 Jumps and GARCH effects;44 9;4 Modelling commodity prices;52 9.1;4.1 Stochastic processes;53 9.1.1;4.1.1 Stochastic volatility;57 9.1.2;4.1.2 Jump diffusion;59 9.1.3;4.1.3 Lévy processes;63 9.2;4.2 Model selection;69 9.2.1;4.2.1 Calibration;69 9.2.2;4.2.2 Goodness of fit;74 10;5 Capital budgeting implications;79 10.1;5.1 A stylised investment project;79 10.2;5.2 Results;84 11;6 Conclusion;88 12;Appendix;90 12.1;Appendix A;90 12.1.1;A1: Liquidity of commodity prices. A1:;90 12.1.2;A2: Historical price evolution. A1:;91 12.1.3;A3: Non-trading dates excluded from dataset (1);92 12.1.4;A3: Non-trading dates excluded from dataset (2);93 12.1.5;A4: In-sample APDF: Calibrated parameters (1);94 12.1.6;A4: In-sample APDF: Calibrated parameters (2);95 12.1.7;A5: Out-of-sample APDF: Calibrated parameters (1);96 12.1.8;A5: Out-of-sample APDF: Calibrated parameters (2);97 12.1.9;A6: Capital investment project: Valuation parameters;98 12.2;Appendix B;99 12.2.1;B1: Expected value and variance for GBM and the Vasicek model:;99 12.2.2;B2: Maximum likelihood calibration:;99 12.2.3;B3: Characteristic function and Fourier transforms;101 12.2.4;B4: Quadratic exponential scheme for Heston and Bates process;102 12.2.5;B5: Basis functions and confidence intervals in LSM;105 13;References;107
Schöne, Max
| ISBN | 9783658074937 |
|---|---|
| Article number | 9783658074937 |
| Media type | eBook - PDF |
| Edition number | 2. Aufl. |
| Copyright year | 2014 |
| Publisher | Springer Gabler |
| Length | 114 pages |
| Language | English |
| Copy protection | Digital watermarking |
