Monte Carlo Valuation of natural gas investments

This paper deals with the valuation of energy assets related to natural gas. In particular, we evaluate a baseload Natural Gas Combined Cycle (NGCC) power plant and an ancillary instalation, namely a Liquefied Natural Gas (LNG) facility, in a realistic setting; specifically, these investments enjoy a long useful life but require some non-negligible time to build. Then we focus on the valuation of several investment options again in a realistic setting. These include the option to invest in the power plant when there is uncertainty concerning the initial outlay, or the option's time to maturity, or the cost of CO2 emission permits, or when there is a chance to double the plant size in the future. Our model comprises three sources of risk. We consider uncertain gas prices with regard to both the current level and the long-run equilibrium level; the current electricity price is also uncertain. They all are assumed to show mean reversion. The two-factor model for natural gas price is calibrated using data from NYMEX NG futures contracts. Also, we calibrate the one-factor model for electricity price using data from the Spanish wholesale electricity market, respectively. Then we use the estimated parameter values alongside actual physical parameters from a case study to value natural gas plants. Finally, the calibrated parameters are also used in a Monte Carlo simulation framework to evaluate several American-type options to invest in these energy assets. We accomplish this by following the least squares MC approach.

Valoración de la garantía de los planes de pensiones en España

Este trabajo ha sido presentado en la Universidad del País Vasco y en el VII Encuentro de Economía Aplicada.

Privatización de pensiones y provisión de garantías: una exploración del caso español

Los sistemas de pensiones públicas de reparto con prestación definida a lo largo del mundo se están convirtiendo a planes de aportación definida capitalizados, donde los agentes eligen sus carteras de acciones y bonos. A fin de hacer más atractivas al público estas reformas, los gobiernos típicamente han proporcionado garantías que reducen la exposición de los individuos a los riesgos de inversión, por ejemplo, una garantía de prestación mínima. En este trabajo se analiza una conversión hipotética del actual sistema español de reparto a un modelo de estas características. El valor de la garantía de prestación mínima se aproxima utilizando datos representativos de la situación española. Con objeto de controlar el coste de esta garantía, se exploran algunas técnicas de gestión de riesgos. La práctica más común, a saber, la sobrecapitalización, es bastante ineficaz. Precisamente por ello, después se presentan dos alternativas: (a) una garantía sobre una cartera estandarizada, y (b) un impuesto contingente (dependiente del estado de la naturaleza) sobre los rendimientos. Los cálculos indican que los compromisos no capitalizados pueden reducirse significativamente, e incluso por completo, bajo ambos enfoques, con tasas de aportación relativamente modestas.

Income risk of EU coal-fired power plants after Kyoto

Coal-fired power plants may enjoy a significant advantage relative to gas plants in terms of cheaper fuel cost. Still, this advantage may erode or even turn into disadvantage depending on CO2 emission allowance price. This price will presumably rise in both the Kyoto Protocol commitment period (2008-2012) and the first post-Kyoto years. Thus, in a carbon-constrained environment, coal plants face financial risks arising in their profit margins, which in turn hinge on their so-called "clean dark spread". These risks are further reinforced when the price of the output electricity is determined by natural gas-fired plants' marginal costs, which differ from coal plants' costs. We aim to assess the risks in coal plants' margins. We adopt parameter values estimated from empirical data. These in turn are derived from natural gas and electricity markets alongside the EU ETS market where emission allowances are traded. Monte Carlo simulation allows to compute the expected value and risk profile of coal-based electricity generation. We focus on the clean dark spread in both time periods under different future scenarios in the allowance market. Specifically, bottom 5% and 10% percentiles are derived. According to our results, certain future paths of the allowance price may impose significant risks on the clean dark spread obtained by coal plants.

Un análisis de la investigación sobre contabilidad medioambiental en España

[ES] En este trabajo realizamos un análisis de los artículos sobre contabilidad medioambiental publicados en las principales revistas españolas de gestión, durante el periodo 1993-2003. De esta forma, analizamos la situación actual y la evolución de la investigación en esta línea durante el periodo señalado, así como el papel desempeñado por las distintas revistas en el desarrollo del conocimiento sobre esta materia.

A Note on Risk Acceptance, Bankruptcy Avoidance and Riskiness Measures

In this work we clarify the relationships between riskiness, risk acceptance and bankruptcy avoidance. We distinguish between the restriction on the current wealth required to make a gamble acceptable to the decision maker and the restriction on the current wealth required to guarantee no bankruptcy if a gamble is accepted. We focus on the measure of riskiness proposed by Foster and Hart.

Valuing Expansions of the Electricity Transmission Network under Uncertainty: The Binodal Case

Transmission investments are currently needed to meet an increasing electricity demand, to address security of supply concerns, and to reach carbon-emissions targets. A key issue when assessing the benefits from an expanded grid concerns the valuation of the uncertain cash flows that result from the expansion. We propose a valuation model that accommodates both physical and economic uncertainties following the Real Options approach. It combines optimization techniques with Monte Carlo simulation. We illustrate the use of our model in a simplified, two-node grid and assess the decision whether to invest or not in a particular upgrade. The generation mix includes coal-and natural gas-fired stations that operate under carbon constraints. The underlying parameters are estimated from observed market data.

The Economics of Gasification: A Market-Based Approach

This paper deals with the economics of gasification facilities in general and IGCC power plants in particular. Regarding the prospects of these systems, passing the technological test is one thing, passing the economic test can be quite another. In this respect, traditional valuations assume constant input and/or output prices. Since this is hardly realistic, we allow for uncertainty in prices. We naturally look at the markets where many of the products involved are regularly traded. Futures markets on commodities are particularly useful for valuing uncertain future cash flows. Thus, revenues and variable costs can be assessed by means of sound financial concepts and actual market data. On the other hand, these complex systems provide a number of flexibility options (e.g., to choose among several inputs, outputs, modes of operation, etc.). Typically, flexibility contributes significantly to the overall value of real assets. Indeed, maximization of the asset value requires the optimal exercise of any flexibility option available. Yet the economic value of flexibility is elusive, the more so under (price) uncertainty. And the right choice of input fuels and/or output products is a main concern for the facility managers. As a particular application, we deal with the valuation of input flexibility. We follow the Real Options approach. In addition to economic variables, we also address technical and environmental issues such as energy efficiency, utility performance characteristics and emissions (note that carbon constraints are looming). Lastly, a brief introduction to some stochastic processes suitable for valuation purposes is provided.

Ekonomian lizentziaturako matematika II. Azterketak

Ekonomian Lizentziaturako Matematika II irakasgaia gainditu behar duten ikasleentzat, eta baita ere, gai batzuetan, gradu berriko Matematika I eta Matematika II irakasgaiko ikasleentzat. Ekonomian Lizentziaturako Matematika II irakasgaiko azken hamar urteetan jarri diren azterketak eta haien erantzunak aurkituko dituzue. Lehenengo zatian, egin gabeko azterketak daude, ordena kronologikoan, zaharrenetik berrienera, eta bigarren zatian, erantzunak daude, ordena kronologikoan ere baina gaika ere. Horrela, programaren gai bakoitzaren ariketa guztiak elkarrekin aurkituko dituzue, gaiz gai ikasi nahi izanez gero

Ekonomian lizentziaturako matematika III. Azterketak

irakasgaia gainditu behar duten ikasleentzat, eta baita ere, gai batzuetan, gradu berriko Matematika I eta Matematika II irakasgaiko ikasleentzat.Ekonomian Lizentziaturako Matematika III irakasgaiko azken hamar urteetan jarri diren azterketak eta haien erantzunak aurkituko dituzue. Lehenengo zatian, egin gabeko azterketak daude, ordena kronologikoan, zaharrenetik berrienera, eta bigarren zatian, erantzunak daude, ordena kronologikoan ere baina gaika ere. Horrela, programaren gai bakoitzaren ariketa guztiak elkarrekin aurkituko dituzue, gaiz gai ikasi nahi izanez gero.

Ekonomian lizentziaturako matematika IV. Azterketak

Ekonomian Lizentziaturako Matematika IV irakasgaia gainditu behar duten ikasleentzat, eta baita ere, gai batzuetan, gradu berriko Matematika I eta Matematika II irakasgaiko ikasleentzat.Ekonomian Lizentziaturako Matematika IV irakasgaiko azken hamar urteetan jarri diren azterketak eta haien erantzunak aurkituko dituzue. Lehenengo zatian, egin gabeko azterketak daude, ordena kronologikoan, zaharrenetik berrienera, eta bigarren zatian, erantzunak daude, ordena kronologikoan ere baina gaika ere. Horrela, programaren gai bakoitzaren ariketa guztiak elkarrekin aurkituko dituzue, gaiz gai ikasi nahi izanez gero.

Enpresen administrazio eta zuzendaritzako lizentziaturako matematika III. Azterketak

Enpresen Administrazio eta Zuzendaritzako Lizentziaturako Matematika III irakasgaia gainditu behar duten ikasleentzat, eta baita ere, gai batzuetan, gradu berriko Matematika I eta Matematika II irakasgaiko ikasleentzat.Enpresen Administrazio eta Zuzendaritzako Lizentziaturako Matematika III irakasgaiko azken hamar urteetan jarri diren azterketak eta haien erantzunak aurkituko dituzue. Lehenengo zatian, egin gabeko azterketak daude, ordena kronologikoan, zaharrenetik berrienera, eta bigarren zatian, erantzunak daude, ordena kronologikoan ere baina gaika ere. Horrela, programaren gai bakoitzaren ariketa guztiak elkarrekin aurkituko dituzue, gaiz gai ikasi nahi izanez gero.