Investigation of Convenience Yield Effects on Oil Extraction in Sandy Oil Field: Application of Real Option

Document Type : پژوهشی

Authors

• Mohsen Ebrahimi
• Ezatollah Abbasian
• Mohammad Mazraati
• Azim Nazari

https://doi.org/10.22067/pm.v21i7.43012

Abstract

During recent years, energy market has become the largest commodity
market. On the other hand with the definition of commodity derivatives, it
has become advanced financial markets in the world. Therefore, we must
utilize the techniques used in financial markets, especially the valuationtechniques. One of valuation techniques in financial markets is options
pricing method that can be used for real asset as real option. Options theory
use stochastic differential equations of price for valuation of financial asset.
Because the nature of the goods and assets is different so this equation
should be changed.
Based on stochastic crude oil spot price, it is possible that there are three
options such as opening, temporary closure and abandonment in oil field.
The purpose of this paper is investigation effects of constant and stochastic
convenience yield on value of options in the oil field based on the estimated
parameters, physical and economic data of sandy oil field and the extraction
of switching price for switch from one option to another.
Research findings show when the convenience yield is stochastic, value of
oil field decrease and also value of options is zero in higher spot price than
constant convenience yield. In other words, the value of oil field by present
value and options are equal in higher spot price. Also the interval of
switching price changes whit moving of constant to stochastic convenience
yield. Finally with increasing of correlation coefficient of spot price and
convenience yield, value of oil field reduced.

Keywords

• Kalman filter
• Oil Spot Price
• Convenience Yield
• Real Options and Option Pricing

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