IDEAS home Printed from https://ideas.repec.org/a/spr/annopr/v336y2024i1d10.1007_s10479-023-05249-x.html
   My bibliography  Save this article

A valuation of a corn ethanol plant through a compound options model under skew-Brownian motions

Author

Listed:
  • Marta Biancardi

    (University of Bari)

  • Michele Bufalo

    (Università degli Studi di Roma ”La Sapienza”)

  • Antonio Di Bari

    (University of Bari)

  • Giovanni Villani

    (University of Bari)

Abstract

In the last decades, the production of fuel ethanol from corn has spread as a valid renewable alternative to pursue sustainability goals. However the uncertain nature of both input (corn) and output (gasoline) prices, together with price dependent operational decisions, combine to make this difficult plant valuation require a real options approach. Moreover, this project is characterized by various sequential stages that contribute to increase its valuation difficulties. The purpose of this paper is to provide a reliable valuation methodology of a corn ethanol plant project able to consider the characteristics of the project. We apply the compound Real Options Approach to price a corn ethanol plant project considering that the corn and gasoline prices both follow a skew-geometric Brownian motion. We also propose a case study to show a real implementation of our theoretical model. The results show that the corn ethanol plant is financially attractive as renewable investment since the uncertainties inherent in the project add value, via managerial flexibility, to the real option valuation.

Suggested Citation

  • Marta Biancardi & Michele Bufalo & Antonio Di Bari & Giovanni Villani, 2024. "A valuation of a corn ethanol plant through a compound options model under skew-Brownian motions," Annals of Operations Research, Springer, vol. 336(1), pages 1063-1087, May.
    • Handle: RePEc:spr:annopr:v:336:y:2024:i:1:d:10.1007_s10479-023-05249-x
    DOI: 10.1007/s10479-023-05249-x
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s10479-023-05249-x
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s10479-023-05249-x?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:annopr:v:336:y:2024:i:1:d:10.1007_s10479-023-05249-x. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.