- Apply for Authority
- P-ISSN2287-1608
- E-ISSN2287-1616
- KCI
ISSN : 2287-1608
Using Real Options Pricing to Value Public R&D Investment in the Deep Seabed Manganese Nodule Project
Yoo, Seung-Hoon
Kwak, Seung-Jun
- Downloaded
- Viewed
Abstract
This paper seeks to measure the monetary value of technical development in the deep seabed manganese nodule mining by applying the compound option model (COM). The COM is appropriate for the project in terms of its decision-making structure and embedded uncertainty. The estimation results show that the deep seabed mining project has more economic potential than shown by the previously obtained results from the discounted cash flow (DCF) analysis. In addition, it is reasonable to invest in the project taking the various uncertainty factors into consideration, because the ratio of the value to the cost of the project is far higher than one. This information can be utilized in national ocean policy decision-making.
- keywords
- Real option pricing, compound option model, technology valuation, deep seabed manganese nodule project
Reference
Ajak, D.A., and Topal, E. (2015), Real option in action: an example of flexible decision making at a mine operational level, Resources Policy, 45, 109-120.
Black, F., and Scholes, M. (1973), The pricing of option and corporate liabilities, Journal of Political Economy, 81(3), 637-654.
Clark, J.P., and Neutra, M.R. (1987), Mining manganese nodules: potential economic and environmental effects, Marine Policy, 9(2), 99-109.
Copeland, T.E., and Keenan, P.T. (1998), Making real options real, The Mckinsey Quarterly, 3, 128-141.
Costa Lima, G.A., and Suslick, S.B. (2006), Estimating the volatility of mining projects considering price and operating cost uncertainties, Resources Policy, 31, 86-94.
Damodaran, A. (2013), Available at http://people.stern.nyu.edu/adamodar
Dixit, A.K., and Pindyck, R.S. (1994), Investment Under Uncertainty, Princeton University Press.
Edlson, M.E. (1999), Real Options: Valuing Managerial Flexibility, Harvard Business School Press.
Geske, R. (1979), The valuation of compound options, Journal of Financial Economics, 7(1), 63-81.
Kemna, A. (1993), Case studies on real options, Financial Management, 22, 3, 259-270.
Kim, K.T., Lee, D.J., and Park, S.J. (2014), Evaluation of R&D investments in wind power in Korea using real option, Renewable and Sustainable Energy Reviews, 40, 335-347.
Korea Institute of Ocean Science and Technology (2013), 2012 Report on deep seabed mining development project, Ministry of Land, Infrastructure and Transport [In Korean].
Lint, O., and Pennings, E. (1998), R&D as an option on market introduction, R&D Management, 28(4), 279-287.
Perlitz, M., Peske, T., and Schrank, R. (1999), Real options valuation: the new frontier in R&D project evaluation?, R&D Management, 29(3), 255-269.
- Downloaded
- Viewed
- 0KCI Citations
- 0WOS Citations