Valuing real options: Ornstein-Uhlenbeck model

Álvaro Tresierra Tanaka, Claudia Marilia Carrasco Montero

Abstract


This study has as its main objective to develop an analysis of decision making under uncertainty using the real options application in the evaluation of investments in mining projects. It is also proposed to study the behaviour of gold prices, for the specific case of Peru, using historic prices and based on the commodity prices process. The Ornstein-Uhlenbeck model has been used for this. The main result is that to evaluate projects using the real options approach allows to evaluate –in their real magnitude– the financial benefits associated with an investment project, as it takes into account the trinomial of profitability-risk-flexibility. The assessment method using real options makes it possible to structure strategic thinking.

© 2016 Universidad ESAN. Published by Elsevier España, S.L.U. This is an open access article under the  CC BY-NC-ND license (http://creativecommons.org/licenses/by-nc-nd/4.0/).


Keywords


Ornstein-Uhlenbeck; Brownian movement; Mean reversion; Real options; Gold

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