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Monte Carlo valuation of natural gas investments
Author(s) -
Abadie Luis M.,
Chamorro José M.
Publication year - 2009
Publication title -
review of financial economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.347
H-Index - 41
eISSN - 1873-5924
pISSN - 1058-3300
DOI - 10.1016/j.rfe.2008.10.002
Subject(s) - futures contract , natural gas , monte carlo method , natural gas prices , electricity , valuation (finance) , liquefied natural gas , economics , econometrics , spot contract , mean reversion , investment (military) , financial economics , finance , engineering , mathematics , statistics , electrical engineering , politics , political science , law , waste management
In this evaluation of energy assets related to natural gas, our particular focus is on a base load natural gas combined cycle power plant and a liquefied natural gas facility in a realistic setting. We also value several American‐type investment options following the least squares Monte Carlo approach. We calibrate mean‐reverting stochastic processes for gas and electricity prices by using data from NYMEX NG futures contracts and the Spanish wholesale electricity market, respectively. Additional sources of uncertainty concern the initial investment outlay, or the option's time to maturity, or the cost of CO 2 emission permits.