A1 Journal article (refereed), original research

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


Publication Details
Authors: Collan Mikael, Savolainen Jyrki, Luukka Pasi
Publication year: 2017
Language: English
Related Journal or Series Information: Mineral economics
Volume number: 30
Issue number: 2
Start page: 107
End page: 115
Number of pages: 9
eISSN: 2191-2211
JUFO-Level of this publication: 1
Open Access: Not an Open Access publication

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.


Last updated on 2018-10-12 at 09:53