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Petroleum Concessions with Extendible Options: Investment Timing and Value Using Mean Reversion and Jump Processes for Oil Prices

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  • Marco Antônio Guimarães Dias
  • Katia Maria Carlos Rocha

Abstract

The owner of a petroleum exploration concession in Brazil has an investment option until the expiration date fixed by the governmental agency, which can be extended by additional cost. The value of these rights and the optimal investment timing are calculated by solving a stochastic optimal control problem of an American call option with extendible maturities. The uncertainty of the oil prices is modeled as a mix diffusion-jump process. Normal information arrival generates continuous mean-reverting process for oil prices, whereas a random abnormal information generates a discrete jump of random size. Comparisons are performed with the popular geometric Brownian process and also the quantification and analysis of alternative timing policies for the petroleum sector. O detentor da concessão de exploração de petróleo no Brasil tem uma opção de investimento até uma data de expiração fixada pela agência governamental, a qual pode estender mediante um custo adicional. O valor desses direitos e a política ótima de investimento são calculados resolvendo um problema de controle ótimo estocástico de uma opção americana de compra com maturidades estendíveis. A incerteza do preço do óleo é modelada como um processo de difusão misto (reversão à média + saltos). Informações normais geram um processo contínuo de reversão à média para o preço do óleo, porém choques aleatórios produzem saltos discretos e estocásticos. Comparações com o tradicional movimento geométrico browniano são realizadas bem como quantificações e análises de políticas alternativas ótimas para o setor de petróleo.

Suggested Citation

  • Marco Antônio Guimarães Dias & Katia Maria Carlos Rocha, 2015. "Petroleum Concessions with Extendible Options: Investment Timing and Value Using Mean Reversion and Jump Processes for Oil Prices," Discussion Papers 0082, Instituto de Pesquisa Econômica Aplicada - IPEA.
  • Handle: RePEc:ipe:ipetds:0082
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    References listed on IDEAS

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