Equilibrium and Real Options in the Ethanol Industry: Modelling and Empirical Evidence

In the last twenty years a large number of competitive ethanol rms have estab- lished operations in the US. Ethanol, produced from corn, is blended with pure gasoline to produce fuel. Producers hold an option to turn o unpro table plants. Blenders choose to substitute ethanol for gasoline at or...

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Detalles Bibliográficos
Autores principales: Merener, Nicolás, Davison, Matt
Formato: Artículo submittedVersion
Lenguaje:Inglés
Publicado: Journal of Commodity Markets 2022
Materias:
Ethanol Production
Real options
Biofuels
Valuation
Acceso en línea:https://repositorio.utdt.edu/handle/20.500.13098/11450
https://doi.org/10.1016/j.jcomm.2022.100292
https://dx.doi.org/10.2139/ssrn.3307105
Aporte de:
Repositorio Digital Universidad Torcuato Di Tella de Universidad Torcuato Di Tella
id I57-R163-20.500.13098-11450
record_format dspace
institution Universidad Torcuato Di Tella
institution_str I-57
repository_str R-163
collection Repositorio Digital Universidad Torcuato Di Tella
language Inglés
orig_language_str_mv eng
topic Ethanol Production
Real options
Biofuels
Valuation
spellingShingle Ethanol Production
Real options
Biofuels
Valuation
Merener, Nicolás
Davison, Matt
Equilibrium and Real Options in the Ethanol Industry: Modelling and Empirical Evidence
topic_facet Ethanol Production
Real options
Biofuels
Valuation
description In the last twenty years a large number of competitive ethanol rms have estab- lished operations in the US. Ethanol, produced from corn, is blended with pure gasoline to produce fuel. Producers hold an option to turn o unpro table plants. Blenders choose to substitute ethanol for gasoline at or beyond the minimum ratio set by the government. We propose and test an equilibrium model for blenders and producers that accounts for the real optionality embedded in the industry. The model, driven by corn and gasoline prices, leads to analytical expressions for the price and physical output of ethanol, and for the value of an ethanol producer. We confront the model with data between 2000 and 2017. In line with the model, we con rm that ethanol was largely priced as the maximum of rescaled gasoline and corn prices. Historical output levels between the mandate and installed capacity were explained by the model. Finally, the share price dynamics for the largest public ethanol producer in the US was consistent in some aspects with the value of a real option.
format Artículo
submittedVersion
author Merener, Nicolás
Davison, Matt
author_facet Merener, Nicolás
Davison, Matt
author_sort Merener, Nicolás
title Equilibrium and Real Options in the Ethanol Industry: Modelling and Empirical Evidence
title_short Equilibrium and Real Options in the Ethanol Industry: Modelling and Empirical Evidence
title_full Equilibrium and Real Options in the Ethanol Industry: Modelling and Empirical Evidence
title_fullStr Equilibrium and Real Options in the Ethanol Industry: Modelling and Empirical Evidence
title_full_unstemmed Equilibrium and Real Options in the Ethanol Industry: Modelling and Empirical Evidence
title_sort equilibrium and real options in the ethanol industry: modelling and empirical evidence
publisher Journal of Commodity Markets
publishDate 2022
url https://repositorio.utdt.edu/handle/20.500.13098/11450
https://doi.org/10.1016/j.jcomm.2022.100292
https://dx.doi.org/10.2139/ssrn.3307105
work_keys_str_mv AT merenernicolas equilibriumandrealoptionsintheethanolindustrymodellingandempiricalevidence
AT davisonmatt equilibriumandrealoptionsintheethanolindustrymodellingandempiricalevidence
bdutipo_str Repositorios
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