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Evaluating Natural Resource Investments

Michael J. Brennan and Eduardo S. Schwartz
The Journal of Business
Vol. 58, No. 2 (Apr., 1985), pp. 135-157
Stable URL: http://www.jstor.org/stable/2352967
Page Count: 23
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Evaluating Natural Resource Investments
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Abstract

The evaluation of mining and other natural resource projects is made particularly difficult by the high degree of uncertainty attaching to output prices. It is shown that the techniques of continuous time arbitrage and stochastic control theory may be used not only to value such projects but also to determine the optimal policies for developing, managing, and abandoning them. The approach may be adapted to a wide variety of contexts outside the natural resource sector where uncertainty about future project revenues is a paramount concern.

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