Real Options and Energy Management: Using Options Methodology to Enhance Capital Budgeting Decisions

A multi-author title that focuses on both the fundamentals of real options, and the practical approaches for their application in the energy industry The volume is designed to specifically aid valuation and investment decision-making within the energy industry. It brings together the leading practitioners, consultants and academics from the energy sector who present real option approaches and techniques, such as the diagrammatical approach, to help the industry move away from the climate of uncertainty in the market. It provides case studies and examples of the use of real options in the industry to demonstrate how the latest techniques can be applied to power generation, fuel supply and demand issues, and strategic as well as environmental issues in the energy sector. Additionally, it includes the fundamentals of real option pricing and modelling, such as option valuation, modelling approaches, and optimisation. It emphasises applications of theory to practical situations with worked examples that enable the reader to adopt them in their own projects.

Ehud I. Ronn is a Professor of Finance at the University of Texas at Austin and Director of the Center for Energy Finance Education and Research at the McCombs School of Business. Dr. Ronn obtained his B.Sc. and M.Sc. in Economics at the Technion, the Israel Institute of Technology, and his Ph.D. in Finance from Stanford University. He has published articles on investments, interest rate-sensitive instruments and energy derivatives in the academic and practitioner literature, including Journal of Finance, Journal of Business, American Economic Review and Energy & Power Risk Management. Prior to joining the University of Texas at Austin in July 1988, Dr. Ronn was a faculty member of the business schools at the University of California, Berkeley, and the University of Chicago. While on a two-year 1991 - '93 leave of absence from the University of Texas, Dr. Ronn served as Vice President, Trading Research Group at Merrill Lynch & Co., where he was responsible for the valuation and hedging of a wide array of interest rate-sensitive securities, from callable bonds to exotic options. Since 1993, he has served as consultant to government agencies, an insurance company, investment banks, risk advisory rms and an energy-derivative software vendor in the interest-rate and energy-commodity arenas. In the energy-consulting area, Dr. Ronn has addressed the multiple issues of Risk Assessment; Construction of Optimal Hedge Portfolios; VAR and CVAR; Dual-Fuel Options; Valuation of Load-Following Services; Modelling Energy Prices and Pricing Monthly and Daily Options; and the Valuation and Optimal Management of Storage Facility.