Method for Consistent Valuation of Assets With Multiple Sources of Uncertainty
- David Wilkinson (Efficient Solutions Incorporated) | William J. Bailey (Schlumberger-Doll Research) | Benoît Couët (Schlumberger-Doll Research)
- Document ID
- Society of Petroleum Engineers
- SPE Economics & Management
- Publication Date
- October 2012
- Document Type
- Journal Paper
- 204 - 214
- 2012. Society of Petroleum Engineers
- 7.1 Asset and Portfolio Management
- 4 in the last 30 days
- 594 since 2007
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A simplified version of the Smith and Nau (1995) integrated solution scheme is applied to the valuation of an oilfield project possessing salvage options and both private and public uncertainties. It is shown that the computed valuation is consistent with the definition of the real option price as the maximum value that could be obtained, without market risk, from an ensemble of projects that sample the private uncertainty. The attainment of this value requires an optimal decision strategy and a hedging strategy, both of which are obtained as a byproduct of the valuation. The interpretation of the obtained value is validated by forward simulation over an ensemble of projects, by use of a fully reproducible worked example.
|File Size||694 KB||Number of Pages||11|
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