7384

Luiz de Magalhães Ozorio
Carlos de Lamare Bastian-Pinto
Tara Nanda Baidya
Luiz Eduardo Teixeira Brandão

Revista Brasileira de Finanças

Steel is a commodity with significant price volatility and the choice of the stochastic process
that better describes its price performance is a fundamental issue in real options valuation in steel industry projects. As verified with other commodities, it is assumed that steel prices can be led partially by a mean reversion component, but the analysis of some economic issues related to production indicates that steel prices may also have a rising drift component. This, in practical terms, would increase the long term mean with time. This work presents a model that we call Mean Reversion with Drift (MRM-D), in which a deterministic tendency is attached to the long term equilibrium level in order to capture the increase of steel production marginal cost. It then evaluates the implications of using this model in valuation of steel sector projects.

mean reversion models, real options, steel sector, stochastic processes

OZORIO, L. M.; BASTIAN-PINTO, C. L.; BAIDYA, T. N.; BRANDÃO, L. E. T. Reversão à Média com Tendência e Opções Reais na Siderurgia.. Revista Brasileira de Finanças, v. 10, n. 2, p. 215-241, 2012.

Ozorio, L. M., Bastian-pinto, C. L., Baidya, T. N., & Brandão, L. E. T. (2012). Reversão à Média com Tendência e Opções Reais na Siderurgia.. Revista Brasileira de Finanças, 10(2), 215-241.

https://www.spell.org.br/documentos/ver/7384/mean-reversion-with-drift-and-real-options-in-steel-industry-/i/en

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