Proceedings of the Royal Society A Mathematical Physical and Engineering Sciences · 2010 · 20 citations · 25 references
EngineeringLife PredictionEnvironmental Impact AssessmentStochastic AnalysisDeterioration ModelingOperations ResearchExtraction ProjectUncertainty QuantificationSystems EngineeringStatisticsQuantitative ManagementMine DesignStochastic ModelingStochastic OptimizationMining CompanyAbandonment PriceLife Cycle AssessmentNumerous UncertaintiesNatural Resource Extraction
When a mining company begins extraction from a finite resource, it does so in the presence of numerous uncertainties. One key uncertainty is the future price of the commodity being extracted, since a large enough drop in price can make a resource no longer cost-effective to extract, resulting in the mine being closed down. By specifying a stochastic price process, and implementing a financial-type model which leads to the use of partial differential equations, this paper creates the framework for efficiently capturing the probability of a mine remaining open throughout its planned extraction period, and derives the associated expected lifetime of extraction. An approximation to the abandonment price is described, which enables a closed-form solution to be derived for the probability of operational success and expected lifetime. This approximation compares well with the full solution obtained using a semi-Lagrangian numerical technique.
25
Eduardo S. Schwartz, Avinash Dixit, Robert S. Pindyck · The Journal of Finance · 1994 · 9.9K citations
The pricing of commodity contracts
Fischer Black · Journal of Financial Economics · 1976 · 2.9K citations