Estimating The Volatility Of Projects Of Mineral Goods [estimativa Da Volatilidade De Projetos De Bens Minerais]

Abstract

Projecting the volatility of a mineral asset depends on its future cash-flow, and as such, should be estimated using its intrinsic economical-financial and operational characteristics instead of its past history. Because of lack of information, in many cases, it is assumed that the project and commodity (oil, gold, as well as other commodity minerals) share the same volatility. Nevertheless, this approach may give misleading results. This paper proposes a framework to estimate the volatility of oil and gold considering that commodity price evolves over time following a Geometric Brownian Motion Model or Mean-Reversion Motion Model. Main results indicate that project volatility is equal to that of its commodity only in very special cases, i.e., low operational costs and high prices, which is currently unrealistic for most industries.5913746www.hndes.gov.hr, Página acessada em Março de 2004Black, H., Scholes, M., The pricing of options and corporate liabilities (1973) Journal of Political Economy, 81, pp. 637-659Bordieri, C.A., (2005) Um Método Quantitativo Para Estimativa da Volatilidade de Projetos de Produção de Petróleo, 110p. , FEM e IG/UNICAMP: Programa de Ciências e Engenharia de Petróleo, (Dissertação de Mestrado)Bordieri, C.A., Lima, G.A.C., Suslick, S.B., A quantitative method for estimation of volatility of oil production projects (2005) Hydrocarbons Economics and Evaluation Symposium, , Dallas: SPEBrennan, M.J., Schwartz, E.S., Evaluating natural resource investment (1985) Journal of Business, 58 (2), pp. 135-157Campbell, J., Lo, Y., Andrew, W., Mackinlay, A.C., (1997) The Econometrics of Financial Markets, , Princeton University PressCox, John, J., Mark, R., (1985) Options Markets, 498p. , Englewood Cliffs, New Jersey: Prentice-HallDavis, G.A., Estimating volatility and convenience yield when valuing real options to invest or to abandon (1986) Quartely Review of Finance, 38, pp. 715-754Dixit, A.K., Pindyck, R.S., (1994) Investment under Uncertainty, 476p. , New Jersey: New Jersey University PressGentry, D.W., O'Neil, T.J., Mine investment analysis (1984) AIME, 502p. , New York: Society of Mining EngineersHull, J., (1999) Options, Futures and Other Derivative Securities, 698p. , Upper Saddle River: Prentice-HallLima, G.A.C., (2004) Uma Proposta de uso Ja Teoria da Preferênria e das Opções Reais em Projetas de Exploração e Produção de Petréleo, 226p. , IG/UNICAMP, Tese de doutoradoLima, G.A., Suslick, S.B., Impacts of environmental constraints on the optimal decision-making process applied to Brazilian petroleum industry (2002) Journal of Canadian Petroleum Technology, 41 (9)LUENBERGUER, D.G., (1998) Investment Science, 494p. , Oxford: Oxford PressMcdonald, R., Siegel, D., The value of waiting to invest (1986) Quarterly Journal of Economics, 101, pp. 707-728. , NovemberZvi, B., Kane, A., Marcus, A.J., (2000) Fundamentos de Investimentos, 628p. , Bookman Companhia EditoraMerton, R.C., (1990) Continuous Time Finance, 732p. , Blackwell Publishers IncPindyck, R.S., (2001) The Long Run Evolution of Energy Prices, 35p. , Massachusetts Institute of Technology (MIT). Working paper, Q 30, Q 40Pindyck, R.S., Rubinfeld, D.L., (1991) Econometric Models and Economic Forecasting, , McGraw-HillRoss, S.A., Westerfield, R.W., Jaffe, F.J., (1999) Administração Financeira, , São Paulo: AtlasSick, G., (1999) Analysing Volatility of A Petroleum Property, , Working Paper. Real Options Group e University of CalgaryPaddock, J.L., Siegel, D.R., Smith, J.L., Option valuation of claims on real assets: The case of offshore petroleum leases (1988) The Quartely Journal of Economics, 103 (3), pp. 479-508Stermole, F.J., Stermolh, J.M., (1993) Economic Evaluation and Investment Decision Methods. 8th Ed., 479p. , Golden, Colorado: Investment Evaluations CorporationTrigeorgis, L., (1996) Real Options - Managerial Flexibility and Strategy in Resources Allocation. Third Edition, 427p. , Cambridge: The MIT Pres