Option premiums in mineral asset pricing: are they important?

A review of attempts to empirically quantify the “option premium” associated with optimal mineral asset management. The option premium appears to explain at most half of the observed gap between the discounted cash flow value and the market value of mineral assets, and it adds 3 percent at most to...

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Bibliographic Details
Published in:	Land Economics Vol. 72; pp. 167 - 187
Main Author:	Davis, Graham A.
Format:	Article
Published:	University of Wisconsin Press May 1996
Subjects:	Mathematical models Mines & mineral resources Resource exploitation Valuation of real property Option value
Online Access:	View this record in EBSCOhost

Description
Summary:	A review of attempts to empirically quantify the “option premium” associated with optimal mineral asset management. The option premium appears to explain at most half of the observed gap between the discounted cash flow value and the market value of mineral assets, and it adds 3 percent at most to the gross worth of a mineral asset. Asset management option premiums thus have only a second-order effect on mineral asset pricing.