'Antamina Case\r'

'In what way is the let outment of Antamina mine a real cream? Compare it to a pecuniary election. The Antamina mine national can be copy as a real option. An option in pecuniary terms is the right to buy/ move something, it is non mandatory to buy/sell, is a pickax that the owner can do. If you can earn with the answer of the option, you use your right, alone if it is not the case you only when do not utilize it. In this way the return derived from an option is asymmetric.In real term an option is defined as the flexibility a theater director has to take decisions. For example if he can direct if take the decision to invest or not in a attend, if develop or not a product, if expand or not the contour of services offered. They are â€Å"real” because concern the project and are in project in the wizard that design the element of the system, but the characteristics of asymmetric returns, pick of use and sunk tolls are the aforementioned(prenominal) of mone tary option.The Net Present Value analytic thinking not considers these options and believes that it is not contingent to take decisions but they are predetermined. Instead the Real Options analysis takes in account of these flexibilities and evaluate their effect on the encourage of the project. The characteristics of a real option are in the main three: Timing Uncertainty Irreversibility In the Antamina case the characteristic of timing is two years, in accompaniment is not necessary to take decision to develop or not the mine immediately.The uncertainty concerns the note value of the mine, the costs of the opening and the price of the metal that testament extract. The irreversibility is about the option premium that is a cost not recoverable, if it is exercised or not the option you pass to pay it. The option used is a cover-like option (right to buy something to a predetermined price), so it is possible compare a common financial call option with the Antamina real one. In a typical financial option the underlying asset is a stock, alternatively in the Antamina case it is the value of the mine, the value of the militia of metal contained in it. The exercise price of a financial option is the strike price, the price at which you can buy/sell the option, instead in the case analyzed is the development cost of the mine. comparing the maturities in the financial case is the time of the option, the time at which the option can be exercised, and in the real case is two years from now.The excitableness concern the stock price in financial option, in Antamina mine is the volatility of metal price and the volatility of reserve value. The main differences between a financial option and the real option in general are: the period (years) that is much longish than a financial option (three-six months), and the difficulty to feigning the future value of the asset that cannot be forecasted basing on the past observations. It is very important to take in acc ount these considerations in the valuation of a project.\r\n'