The Three-factor Decision Model of Coal Resource Development Investment Project Based on Options

It is significant for scientific and rational decision-making method of coal resources development investment (for short CRDI) to evaluate reasonably the value of coal resources investment, to make the best coal resources investment program, and to timely manage the risks and flexibility in investment process. On the basis of analyzing the option characteristics of CRDI, CRDI could be regarded as a compound real option. In fact, when there are a lot of abrupt events, jump diffusion process can better fit the changing tendency of spot price, risk-free interest rate and convenience yield were not constant. A three-factor model is set up when coal spot price follows jump-diffusion process, interest rate follows HJM model and convenience yield follows mean-reverting process. Through a real example application, we found the model can get higher values.