Investigating the effect of price process selection on the value of a metal mining asset portfolio

Investigating the effect of price process selection on the value of a metal mining asset portfolio This paper studies how the selection of the metal price process used and the choice of selected other modeling assumptions affect the value of a metal mining company’s mining asset portfolio. We compare results from when metal prices are assumed to be independent of each other, correlated with each other, and correlated with an external factor. These studies are carried out by using the geometric Brownian motion-based and mean-reverting metal price processes. What is also studied is the effect caused by replacing one of the portfolio metals with a typically counter cyclic metal, in this case gold. Numerical simulation analysis is made to study these issues. The results highlight the importance of correctly selecting the price processes used and corroborate some earlier findings on the topic, while also highlighting the effects of process and other modeling choices on (real) option valuation. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Mineral Economics Springer Journals

Investigating the effect of price process selection on the value of a metal mining asset portfolio

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Publisher
Springer Berlin Heidelberg
Copyright
Copyright © 2017 by Springer-Verlag Berlin Heidelberg
Subject
Economics; Industrial Organization; Mineral Resources; Innovation/Technology Management; Environmental Economics; Engineering Economics, Organization, Logistics, Marketing
ISSN
2191-2203
eISSN
2191-2211
D.O.I.
10.1007/s13563-017-0102-2
Publisher site
See Article on Publisher Site

Abstract

This paper studies how the selection of the metal price process used and the choice of selected other modeling assumptions affect the value of a metal mining company’s mining asset portfolio. We compare results from when metal prices are assumed to be independent of each other, correlated with each other, and correlated with an external factor. These studies are carried out by using the geometric Brownian motion-based and mean-reverting metal price processes. What is also studied is the effect caused by replacing one of the portfolio metals with a typically counter cyclic metal, in this case gold. Numerical simulation analysis is made to study these issues. The results highlight the importance of correctly selecting the price processes used and corroborate some earlier findings on the topic, while also highlighting the effects of process and other modeling choices on (real) option valuation.

Journal

Mineral EconomicsSpringer Journals

Published: Jan 30, 2017

References

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