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Application of Real Option Methods for Emission Abatement Investments

Mayer, Carmen; Schultmann, Frank

Abstract (englisch):

Real option analyses are broadly discussed in economics and finance and multiple application examples have been published over the last centuries. Different calculation methods for option values have been presented and successfully implemented in theoretical case studies and practical applications. Especially in application-oriented publications, however, there is often no detailed explanation, why a specific calculation method has been chosen and which effects this may cause regarding the results as well as the transparency and practicability of the method. Therefore we will present a brief overview of the type of applications we consider - investments in emission abatement investments for large industrial plants, typically of the energy, steel or chemical sector. These investments have some specific characteristics, most importantly they are usually not economically reasonable as they do not generate noteworthy revenues, but are enforced by political regulations. We will discuss how the specific features and assumptions can be “translated” in the financial language of option valuation. Afterwards, an overview of the most relevant option valuation methods will be provided, considering analytic, numeric and stochastic approaches. ... mehr

Zugehörige Institution(en) am KIT Institut für Industriebetriebslehre und Industrielle Produktion (IIP)
Publikationstyp Vortrag
Publikationsjahr 2017
Sprache Englisch
Identifikator KITopen-ID: 1000073777
Veranstaltung 21st Annual International Conference Real Options: Theory Meets Practice, Boston, 29.06.-01.07.2017
Schlagwörter Real Option Analysis, Emission Abatement
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