Riskless rate = 8%
Basedontheseinputs,theBlack-Scholesmodelprovidesthe
following values.
Thisoilreserve,thoughnotviableatcurrentprices,isstill
valuablebecauseofitspotentialtocreatevalueifoilprices
go up.
12
Valuing a Firm with Undeveloped Reserves
The examples provided so far illustrate the use of option
pricing theory in valuing individual mines and oil tracts.
Sincethe assets owned bya natural resourcefirm canbe
viewedprimarily as options, the firmitself canbe valued
using option pricing models.
Individual Reserves versus Aggregate Reserves
The preferred approach would be to consider each
undeveloped reserve separatelyas an option, value it,and
cumulatethevaluesoftheoptionstogetthevalueofthefirm.
Sincethisinformationislikelyto bedifficulttoobtain for
large natural resourcefirms, suchas oilcompanies, which
ownhundredsofsuchassets,avariantofthisapproachisto
value the undeveloped reserves of the entire firm as one