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Option Pricing by the Nonrenewable Resource Extracting Firm Facing Output Price Uncertainty

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  • John Hartwick
  • David Yeung

Abstract

We establish a general preference for price uncertainty by the price taking, risk neutral, nonrenewable resource extracting firm with orthodox convex extraction costs. Option prices for delivery of a ton at a particular date in the future exceed the expected dollar return from the purchase of the option. The dependence of the option price on initial stock size takes a simple form.

Suggested Citation

  • John Hartwick & David Yeung, 1985. "Option Pricing by the Nonrenewable Resource Extracting Firm Facing Output Price Uncertainty," Working Paper 590, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:590
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