October 17, 2010

Estimating the Influence of Ethanol Policy on Plant Investment Decisions: A Real Options Analysis with Two Stochastic Variables

by T.M. Schmit, Luo J. Luo and J.M. Conrad

- Ethanol policies have contributed to changes in the levels and the volatilities of revenues and costs facing ethanol firms. The implications of these policies for optimal investment behavior are investigated through an extension of the real options framework that allows for the consideration of volatility in both revenue and cost components, as well as the correlation between them.

T.M. Schmit, Luo J. Luo and J.M. Conrad (2010). "Estimating the Influence of Ethanol Policy on Plant Investment Decisions: A Real Options Analysis with Two Stochastic Variables." Department of Applied Economics and Management, Cornell University, WP No. 2010-10, Jun 2010.