An Equlibrium Analysis of Exhaustible Resource Investments

49 Pages Posted: 7 Feb 2002

See all articles by Murray Carlson

Murray Carlson

University of British Columbia (UBC) - Sauder School of Business

Zeigham Khokher

Tulane University

Sheridan Titman

University of Texas at Austin - Department of Finance; National Bureau of Economic Research (NBER)

Date Written: January 2002

Abstract

We develop a general equilibrium model of an exhaustible resource market where both the prices and extraction choices are determined endogenously. The model generates price dynamics that are roughly consistent with observed oil and gas forward and option prices as well as with the two-factor price processes that were calibrated in Schwartz and Smith (2000). However, the subtle differences between the endogenous price process determined within our general equilibrium model and the exogenous processes considered in earlier papers can generate significant differences in both financial and real option values.

Keywords: Exhaustible Resources, Energy

Suggested Citation

Carlson, Murray D. and Khokher, Zeigham and Titman, Sheridan, An Equlibrium Analysis of Exhaustible Resource Investments (January 2002). Sauder School of Business Working Paper. Available at SSRN: https://ssrn.com/abstract=299425 or http://dx.doi.org/10.2139/ssrn.299425

Murray D. Carlson

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-8358 (Phone)

Zeigham Khokher (Contact Author)

Tulane University ( email )

7 McAlister Drive
Tulane University
NEW ORLEANS, LA 70118
United States
504-865-5067 (Phone)

Sheridan Titman

University of Texas at Austin - Department of Finance ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-2787 (Phone)
512-471-5073 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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