The Application Of Real Options In Investment In Mining Rights

The investment of mineral right is faced to huge risk because of the stochastic mineral product price.The value of mineral right is the core problem in the mine market,so it mainly aims to estimate the mineral right in my paper.In practice,real option is applied to mineral right pricing and illustrated by a copper mine case.In light of the opertation in enterprise, mineral right can be seen as a compound option divided by years. In order to calculate the value of right,build an pricing model based on compound option under the conditions of constant volatility and price followed geometric Brownian motion. For further study, a stochastic volatility pricing model is derivate by loosening the previous assumption.Combined with an example of a copper mine mining, analyze the price between the discount cash flow method and the method of compound option. In the constant volatility circumstance,it turns out that the price is higher in the compound option pricing method than in DCF, which means that price premium exists negative phenomenon in the market.This conclusion provides decision-making basis for mining investment of mineral enterprises. In the stochastic volatility circumstance,the price of mineral right is figured out between different volatilities and expected rates of return.This allows enterprise to select investment opportunity with the market and business conditions.