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Evaluating natural resource investments under different model dynamics: managerial insights

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Evaluating natural resource investments under different model dynamics: managerial insights. / Tsekrekos, Andrianos E.; Shackleton, Mark B.; Wojakowski, Rafał M.
In: European Financial Management, Vol. 18, No. 4, 09.2012, p. 543-575.

Research output: Contribution to Journal/MagazineJournal articlepeer-review

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Tsekrekos AE, Shackleton MB, Wojakowski RM. Evaluating natural resource investments under different model dynamics: managerial insights. European Financial Management. 2012 Sept;18(4):543-575. Epub 2010 Feb 19. doi: 10.1111/j.1468-036X.2010.00544.x

Author

Tsekrekos, Andrianos E. ; Shackleton, Mark B. ; Wojakowski, Rafał M. / Evaluating natural resource investments under different model dynamics : managerial insights. In: European Financial Management. 2012 ; Vol. 18, No. 4. pp. 543-575.

Bibtex

@article{b9948600a6204aa18758ef6c9cd0c8f3,
title = "Evaluating natural resource investments under different model dynamics: managerial insights",
abstract = "We focus on factors that drive the dynamics of commodity prices. We highlight the capital budgeting implications of three highly-cited, nested, multi-factor models for commodity prices that have been successful in empirical investigations. Competing assumptions regarding commodity prices and their convenience yields can account for differences close to 40% on average, and in excess of 60% in cases, in the valuation of typical natural resource investments. These value differences are found to increase with the maturity and the intrinsic value of the investment, and also with the level and the volatility of the resource's convenience yield. Resources such as oil or copper, that are used for production purposes, usually exhibit high and volatile convenience yields; thus our findings should be more relevant for decision-makers in such sectors.",
keywords = "natural resource investment, real options, factor models, commodity prices, least-squares Monte Carlo simulation",
author = "Tsekrekos, {Andrianos E.} and Shackleton, {Mark B.} and Wojakowski, {Rafa{\l} M.}",
year = "2012",
month = sep,
doi = "10.1111/j.1468-036X.2010.00544.x",
language = "English",
volume = "18",
pages = "543--575",
journal = "European Financial Management",
issn = "1354-7798",
publisher = "Wiley-Blackwell",
number = "4",

}

RIS

TY - JOUR

T1 - Evaluating natural resource investments under different model dynamics

T2 - managerial insights

AU - Tsekrekos, Andrianos E.

AU - Shackleton, Mark B.

AU - Wojakowski, Rafał M.

PY - 2012/9

Y1 - 2012/9

N2 - We focus on factors that drive the dynamics of commodity prices. We highlight the capital budgeting implications of three highly-cited, nested, multi-factor models for commodity prices that have been successful in empirical investigations. Competing assumptions regarding commodity prices and their convenience yields can account for differences close to 40% on average, and in excess of 60% in cases, in the valuation of typical natural resource investments. These value differences are found to increase with the maturity and the intrinsic value of the investment, and also with the level and the volatility of the resource's convenience yield. Resources such as oil or copper, that are used for production purposes, usually exhibit high and volatile convenience yields; thus our findings should be more relevant for decision-makers in such sectors.

AB - We focus on factors that drive the dynamics of commodity prices. We highlight the capital budgeting implications of three highly-cited, nested, multi-factor models for commodity prices that have been successful in empirical investigations. Competing assumptions regarding commodity prices and their convenience yields can account for differences close to 40% on average, and in excess of 60% in cases, in the valuation of typical natural resource investments. These value differences are found to increase with the maturity and the intrinsic value of the investment, and also with the level and the volatility of the resource's convenience yield. Resources such as oil or copper, that are used for production purposes, usually exhibit high and volatile convenience yields; thus our findings should be more relevant for decision-makers in such sectors.

KW - natural resource investment

KW - real options

KW - factor models

KW - commodity prices

KW - least-squares Monte Carlo simulation

U2 - 10.1111/j.1468-036X.2010.00544.x

DO - 10.1111/j.1468-036X.2010.00544.x

M3 - Journal article

VL - 18

SP - 543

EP - 575

JO - European Financial Management

JF - European Financial Management

SN - 1354-7798

IS - 4

ER -