The Impact of Volatility in Bioenergy Investments: A Real Options Approach

摘要: The paper investigates the impact of volatility on irreversible bioenergy investments in absence policy support schemes. effects different sources and varying investment conditions optimal rule are studied a partial equilibrium model which represents interplay global energy market local food markets. Volatilities presumed to stem from normally distributed stochastic shocks price demand. central assumption is that producers have possibility temporally suspend production if business worsen. solved numerically using real options based simulation experiments combination with genetic algorithms. results demonstrate limit losses through temporary suspension may create incentives invest even at high uncertainty. This effect occurs case both single multiple uncertainties stronger higher variable costs relation fixed costs. It could also be observed presence lags necessary condition for ambiguous uncertainty incentives. declining trigger indicates combined time lags, cost structure increases likelihood extreme profits good states and, therefore, not only weaken, but overcompensate depressing investments.