Uncertainty assessment for the evaluation of net present value: a mining industry perspective

Date

2012-05-01

Author

Erdem, Özge
Demirel, Nuray

Metadata

Show full item record

This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

Item Usage Stats

174
views

0
downloads

The investment decisionmaking process in the insurance and finance industries is affected by new advances such as simulation techniques. These advances have improved the discounted cash flow method (DCF). In DCF, a dynamic and flexible model construction is not possible because it does not consider uncertain conditions. Each project should be evaluated taking into account the related uncertainties because the related uncertainties determine the characterization of the project. Related uncertainties can be processed in dynamic DCF, which is applicable to both financial and non-financial industries with different kind of uncertainties, such as power generation and petroleum projects. The dynamic DCF method can estimate net present value (NPV) while managing related project uncertainties with a simulation method like Monte Carlo Simulation. The simulation method is preferred because its output is unbiased. Therefore, a more realistic financial evaluation of the project can be concluded. In spite of the improvement of dynamic DCF, this project evaluation method is not used frequently in mining industry. However, the mining industry is ideally suited to this concept because it is highly dependent on estimations such as orebody size and ore grade. During the project evaluation stage, these uncertainties can be included with the dynamic DCF method. This study aims to contribute to increasing the usage of this method in mining projects. A copper reserve in Turkey is selected as a case study to apply uncertainty assessment for the evaluation of NPV.

Subject Keywords

Probability, Net present value (NPV), Monte Carlo simulation, Uncertainty

URI

https://hdl.handle.net/11511/54259

Journal

JOURNAL OF THE SOUTHERN AFRICAN INSTITUTE OF MINING AND METALLURGY

Collections

Department of Basic English, Article

Suggestions

OpenMETU
Core

Stability advances in robust portfolio optimization under parallelepiped uncertainty Kara, Guray; Ozmen, Ayse; Weber, Gerhard Wilhelm (2019-03-01) In financial markets with high uncertainties, the trade-off between maximizing expected return and minimizing the risk is one of the main challenges in modeling and decision making. Since investors mostly shape their invested amounts towards certain assets and their risk aversion level according to their returns, scientists and practitioners have done studies on that subject since the beginning of the stock markets' establishment. In this study, we model a Robust Optimization problem based on data. We found...
Bank asset and liability management under uncertainty Oguzsoy, CB; Güven, Sibel (Elsevier BV, 1997-11-01) This study presents a multiperiod stochastic linear simple recourse model for asset and liability management in banking. The model determines the portfolio of assets and liabilities over the planning horizon given a set of deterministic rates of returns of investments and costs of borrowings, and a set of random outstanding deposit levels, liquidity and total reserve requirements with a given discrete probability distribution. The intention is to develop an optimization tool to assure sustained profitabilit...
Robust conditional value–at–risk under parallelpipe uncertainty: an application to portfolio optimization Kara, Güray; Weber, Gerhard Wilhelm; Department of Financial Mathematics (2016) In markets with high uncertainties, the trade–off between maximizing expected return and minimizing the risk is one of the main challenges in modeling and decision making. Since investors mostly shape their invested amounts towards certain assets and their risk version level according to their returns; scientists and practitioners has done studies on this subject since the beginning of the stock markets’ establishment. Developments and inventions in the mathematical optimization provide a wide range of solu...
Empirical comparison of portfolio risk diversification algorithms Yerli, Çiğdem; Kestel, Sevtap Ayşe; Schindler, Nilüfer; Department of Financial Mathematics (2018) The enhanced correlations during global ﬁnancial crisis has revealed that simple asset allocation portfolios prove to be not well-diversiﬁed across different risk factors, which makes the risk based asset allocation strategies popular. However, the strategies still construct the risk concentrated portfolios due to the correlation among the asset classes. As a result, risk allocation among uncorrelated risk factors instead of risk allocation among asset classes have become widely used. This thesis aims to di...
Constant proportion portfolio insurance in defined-contribution pension plan management Temoçin, Büşra Zeynep; Kestel, Sevtap Ayşe; Korn, Ralf; Department of Financial Mathematics (2015) In this thesis, various portfolio insurance strategies are designed and proposed for portfolio management of defined-contribution type pension plans. These type of plans consist of consecutive and defined premium payments which are invested in financial markets and lead to a benefit that will be collected at the retirement. Since the beneficiary faces all of the financial risk throughout the plan, a capital protection mechanism is needed in such retirement systems. The main contribution of the present resea...

Citation Formats

Ö. Erdem and N. Demirel, “Uncertainty assessment for the evaluation of net present value: a mining industry perspective,” JOURNAL OF THE SOUTHERN AFRICAN INSTITUTE OF MINING AND METALLURGY, pp. 405–412, 2012, Accessed: 00, 2020. [Online]. Available: https://hdl.handle.net/11511/54259.