This paper investigates an investment project of power plants which have the operational flexibility to start-up and shut-down. The project analyzed in this study consists of two sequential phases such as the construction and the operation of the power plant. We develop a simulation model taking into account the uncertainties of construction cost, electricity prices, and fuel prices. Consequently, the project value and the probability distribution of the value are calculated by using the model. Furthermore, we show the effect of the investment rate switching and the spark spread options on the project value.
This paper examines strategic decisions by the firms who want to develop a new building in a real estate market with uncertainty and duopoly competition. Compared to earlier “option-game” models which only consider the timing of investment, our model also considers the capacity of the development at the same moment. We analyze two kinds of models on the capacity competition. In a leader-follower game the leader will preempt the follower at the moment where the leader's value is equalized to the followers', consequently the Stackelberg equilibrium capacities of real estate development are decided. In contrast, the firms face a Cournot competition when they decide to develop a real estate simultaneously.
This paper focuses on pricing “temperature options” and the risk sensibility analysis through the marginal substitution value approach. First, in an analogous way to that in Davis , a computational procedure to evaluate the fair price of the temperature options is formulated for a purchaser with utility functions of HARA type whose profit function is directly/inversely proportional to the underlying temperature index. Next, as an illustrative example, by using the procedure together with a time series model of daily air temperatures at Nagoya, temperature option prices on the accumulated cooling degree days (CDDs) in summer for a electric power producer and a gas producer are calculated numerically. Finally, through some numerical simulations in the framework, the risk sensibility of the options prices with respect to a risk aversion coefficient and correlation coefficient between temperature index and a electric power/gas spot price is investigated.
This paper is intended to treat the reserve risks and tracking problems in oil & gas E&P projects in order to help business practitioners to apply real options approach to actual E&P projects. I will firstly verify the effect of the reserve risks, by introducing a stochastic model for the recoverable volume of the oil and gas reserves in the producing fields. Then, I will introduce “Futures Term Structure Asset Valuation Model” to value the underlying asset of the project. The empirical results clearly indicate that the reserve risks can give significant impacts on the valuation of the rights to explore and exploit the oil and gas fields.
The optimal timing of investment under general Lévy process is described in some recent research papers. In this paper, firstly we classify investment decisions in four situations, and show a compact formula of optimal investment timing for each situation under Lévy process. Then we consider a double Erlang jump diffusion model, and derive the project value for an arbitrary investment threshold. By maximize the project value, the optimal investment timing and the corresponding value of project is obtained. Furthermore we show some results of sensitivity analysis for the optimal investment timing of double Erlang jump diffusion model, and describe several examples of usage of this model. Finally we derive equations for solving the entry-exit problem under double Erlang jump diffusion model.