Open access
Date
2020-05Type
- Journal Article
Abstract
In the light of uncertainties, high initial costs, and temporal managerial flexibility, the real options approach has gained interest as a valuation tool for different types of natural resources management problems. Yet, neither real options valuation method excels under consideration of variability of resource endowments, returns-to-scale and predefined sizes of options. We fill the methodological gap by developing a method based on Monte Carlo simulation, scenario tree reduction, and stochastic programming that is advantageous for valuing real options where timing, scale and interactions among constraints and alternatives matter. The method advances in straightforward conversion of deterministic programming applications based on the classical net present value approach into a real options framework, and in introducing complexity into existing real options models. We illustrate the method with a case study featuring investment options regarding the adoption, coppicing, and conversion of perennial biomass energy production systems. Show more
Permanent link
https://doi.org/10.3929/ethz-b-000405669Publication status
publishedExternal links
Journal / series
Environmental Modelling & SoftwareVolume
Pages / Article No.
Publisher
ElsevierSubject
Investment decision; Real options; Monte Carlo simulation; Stochastic programming; Perennial cropOrganisational unit
09564 - Finger, Robert / Finger, Robert
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