ARTÍCULO
TITULO

Mean Reversion with Drift and Real Options in Steel Industry

Luiz de Magalhães Ozorio    
Carlos de Lamare Bastian-Pinto    
Tara Nanda Baidya    
Luiz Eduardo Teixeira Brandão    

Resumen

Steel is a commodity with significant price volatility and the choice of stochastic process that better describes its price performance is a fundamental issue in real options valuation in steel industry projects. As verified with other commodities, it is assumed that steel prices can be led partially by a mean reversion component, but the analysis of some economic issues related to production indicates that steel prices may also have a rising drift component. This, in practical terms, would increase the long term mean with time. This work presents a model that we call Mean Reversion with Drift (MRM-D), in which a deterministic tendency is attached to the long term equilibrium level in order to capture the increase of steel production marginal cost. It then evaluates the implications of using this model in valuation of steel sector projects.

 Artículos similares

       
 
Xiaofeng Zhao    
This paper examines the unusual and puzzling stock price performance of USEC Inc. during July 2013. The stock price surged as much as ten times during merely sixteen trading days without apparent value-changing information being released. Four possible r... ver más

 
Yolanda Stander,Daniël Marais,Ilse Botha    
AbstractA new approach is proposed to identify trading opportunities in the equity market by using the information contained in the bivariate dependence structure of two equities. The relationships between the equity pairs are modelled with bivariate cop... ver más

 
Samih Antoine Azar     Pág. 723 - 733
This paper analyses the statistical behavior of the US dollar, against nine different currencies, over the float period, with a monthly data set. The martingale hypothesis is rejected for all currencies. However, all currencies have a unit root. There is... ver más

 
Carlos L. Bastian-Pinto,Luiz E. T. Brandão     Pág. pp. 97 - 124
Commodity prices are generally better modeled by a long-term Mean Reverting Process, than by a Geometric Brownian Motion stochastic diffusion process, which is more generally used to value real options, since it is simpler to use. In this article we mode... ver más

 
Lee, Hsiu-Yun; Wu, Jyh-Lin     Pág. 477 - 488