Valuing a Natural Resource Option
Originally published: 06/07/2016 14:18
Publication number: ELQ-44873-1
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Valuing a Natural Resource Option

This model calclulates the value of natural resource option.

The user has to input the following variables:
1. Present value of estimated reserves, net of royalties and marginal costs
2. Variance in the price of the natural resource
3. Present value of the cost of developing the natural resource
4. Riskless interest rate that corresponds to relinquishment period
5. Length of the relinquishment period on resource reserves
6. Expected annual after-tax cashflow from resource after it is developed.

Note: this model is being shared with the authorization of Professor Aswath Damodaran from NYU Stern Business School (

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Further information

- Value of the natural resource option

1. All the assumptions underlying the Black-Scholes model apply
2. The estimated reserves of the natural resource are known.

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