Combining System Dynamic Modeling and the Datar–Mathews Method for Analyzing Metal Mine Investments

Jyrki Savolainen; Mikael Collan; Pasi Luukka

Acta Universitatis Palackianae Olomucensis. Facultas Rerum Naturalium. Mathematica (2016)

  • Volume: 55, Issue: 1, page 95-110
  • ISSN: 0231-9721

Abstract

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This paper presents how a dynamic system model can be used together with the Datar–Mathews real option analysis method for investment analysis of metal mining projects. The focus of the paper is on analyzing a project from the point of view of the project owner. The paper extends the Datar–Mathews real option analysis method by combining it with a dynamic system model. The model employs a dynamic discount rate that changes as the debt-level of the project changes. A numerical case illustration of a nickel mining project is presented. The results show that using dynamic system models in real option analysis is not only possible with the Datar–Mathews method, but also that some previously identified problems of real option valuation can be avoided.

How to cite

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Savolainen, Jyrki, Collan, Mikael, and Luukka, Pasi. "Combining System Dynamic Modeling and the Datar–Mathews Method for Analyzing Metal Mine Investments." Acta Universitatis Palackianae Olomucensis. Facultas Rerum Naturalium. Mathematica 55.1 (2016): 95-110. <http://eudml.org/doc/286706>.

@article{Savolainen2016,
abstract = {This paper presents how a dynamic system model can be used together with the Datar–Mathews real option analysis method for investment analysis of metal mining projects. The focus of the paper is on analyzing a project from the point of view of the project owner. The paper extends the Datar–Mathews real option analysis method by combining it with a dynamic system model. The model employs a dynamic discount rate that changes as the debt-level of the project changes. A numerical case illustration of a nickel mining project is presented. The results show that using dynamic system models in real option analysis is not only possible with the Datar–Mathews method, but also that some previously identified problems of real option valuation can be avoided.},
author = {Savolainen, Jyrki, Collan, Mikael, Luukka, Pasi},
journal = {Acta Universitatis Palackianae Olomucensis. Facultas Rerum Naturalium. Mathematica},
keywords = {System dynamic model; Monte Carlo simulation; metal mining; profitability analysis; Datar–Mathews method; real option valuation},
language = {eng},
number = {1},
pages = {95-110},
publisher = {Palacký University Olomouc},
title = {Combining System Dynamic Modeling and the Datar–Mathews Method for Analyzing Metal Mine Investments},
url = {http://eudml.org/doc/286706},
volume = {55},
year = {2016},
}

TY - JOUR
AU - Savolainen, Jyrki
AU - Collan, Mikael
AU - Luukka, Pasi
TI - Combining System Dynamic Modeling and the Datar–Mathews Method for Analyzing Metal Mine Investments
JO - Acta Universitatis Palackianae Olomucensis. Facultas Rerum Naturalium. Mathematica
PY - 2016
PB - Palacký University Olomouc
VL - 55
IS - 1
SP - 95
EP - 110
AB - This paper presents how a dynamic system model can be used together with the Datar–Mathews real option analysis method for investment analysis of metal mining projects. The focus of the paper is on analyzing a project from the point of view of the project owner. The paper extends the Datar–Mathews real option analysis method by combining it with a dynamic system model. The model employs a dynamic discount rate that changes as the debt-level of the project changes. A numerical case illustration of a nickel mining project is presented. The results show that using dynamic system models in real option analysis is not only possible with the Datar–Mathews method, but also that some previously identified problems of real option valuation can be avoided.
LA - eng
KW - System dynamic model; Monte Carlo simulation; metal mining; profitability analysis; Datar–Mathews method; real option valuation
UR - http://eudml.org/doc/286706
ER -

References

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