Evaluation of real options in an oil field

Authors:
João Oliveira Soares;Diogo Baltazar
Affiliations:
CEG, Instituto Superior Técnico, Technical University of Lisbon, Lisboa, Portugal;CEG, Instituto Superior Técnico, Technical University of Lisbon, Lisboa, Portugal
Venue:
MACMESE'10 Proceedings of the 12th WSEAS international conference on Mathematical and computational methods in science and engineering
Year:
2010

Citing 4
Cited 0

Valuing risky projects: option pricing theory and decision analysis

Management Science
Valuing Oil Properties: Integrating Option Pricing and Decision Analysis Approaches

Operations Research
Using Binomial Decision Trees to Solve Real-Option Valuation Problems

Decision Analysis
Alternative Approaches for Solving Real-Options Problems: (Comment on Brandão et al. 2005)

Decision Analysis

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Abstract

The subject of this paper is the application of real options models for valuing an offshore oil property in the North of Africa. Three different approaches were used - one based on the traditional Black-Scholes model, the Marketed Asset Disclaimer (MAD) model, and the Risk Integration approach. These approaches lead to significantly different results. The paper discusses the reasons for these differences and the pros and cons of the three models.