Real Option Valuation Of Oil Development Project Based On The Oil Price Follows A Jump Diffusion Model

As an important energy sources, oil is the important support of national industry and economy. Because of the large investment, high risk and long cycle, a lot of uncertainties are involved in the oil development project. Since the 21st century, oil price fluctuates more violently, which makes the oil development face greater risks. How to correctly assess the value of development projects becomes an increasingly important topic. Especially in our country, in the period of sustained economic development and relatively lack of resources, this kind of issue is particularly important and necessary.As the disadvantages of traditional projects decision-making method (NPV), scholars have gradually accepted the measure of valuing the investment projects by real option theory. But the existing real option pricing research mostly just use simple financial option pricing method, and assume the underlying asset price for the geometric Brownian motion, to paraphrase B-S model or binary tree pricing model. But a growing number of studies have shown that most asset prices exit a "jump" effect and the characteristics of "rush thick tail". This can’t be described by geometric Brownian motion, the price of oil is no exception. In fact, jump diffusion model in the financial option pricing has already been applied in the study, but the field of real options exits few related research.We first analyze the financial option pricing theory and the main numerical calculation method. Then we summarize the main methods of real option pricing:one kind is no arbitrage pricing method based on financial option, another kind is for other endogenous risk pricing method.Based on the above situation, this article will join "jump" introduction of real options in the underlying asset-the price of oil law, the index of oil prices jump diffusion model is constructed. According to the direction of jump, the frequency is described as a Poisson process, and the amplitude is a asymmetric exponential distribution. Existing research of real option pricing model generally assumes the parameter value for some constant value. According to the historical data of oil prices, we estimated the parameters of the model. Estimation method is combined with Lee-Mykl and jump identification method and maximum likelihood estimation, formation identification-the combination of parameter estimation method. Such method not only can estimate parameters, but also can find the timing and statistics the amplitude jumping, original yield sequence can be divided into jump and correction of diffusion process sequences. By comparing the yield of the original and the revised time sequence diagram and the skewness, kurtosis value, we found that this method can effectively isolate "jump", the revised data statistics and closer to normal characteristic of normal distribution. Then we use the monte carlo simulation model to simulate data and real data contrast, and find its Q-Q chart is on a straight line.After completing the model building, the latency options of oil development projects, such as timing option, expansion option and abandonment option, their value wear calculated by the numerical method (LSM) respectively. We found that while a net cash flow is 0, the project contains real option value greater than 0, and the value when considering the underlying assets exist "jump" is bigger than the geometric Brownian motion hypothesis. In this paper, the identification, parameter estimation and option pricing is realized in Matlab.