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

This webpage presents the list of papers and short comments of the new real options book published by Risk Books:
"Real Options and Energy Management - Using Options Methodology to Enhance Capital Budgeting Decisions", edited by the Professor Ehud I. Ronn.
I plan to set here some comments on some selected papers in a near future.

This new real options book presents the editor's introductory article, 21 papers and two appendixes. Most papers are practical and applied to energy sector.
There are some papers more focused in oil and gas projects, in the section 1 and mainly in section 3, with known authors from real options in petroleum literature such us Gordon Sick and Larry Chorn. There are even papers on environmental evaluation, general issues, and mathematical introductory material.
However, electric power generation and transmission valuation are the main focus of this book with many interesting papers.

A multi-author title that focuses on both the fundamentals of real options, and the very latest practical approaches for their application in the energy industry. Real Options and Energy Management has been written to specifically aid investment decision-making within the energy industry.

• Risk Books and Ehud Ronn bring together the leading practitioners, consultants and academics from the energy sector who present the most up-to-date real option approaches and techniques, such as the diagrammatical approach, to help the industry move away from the current climate of uncertainty in the market.
• Readers are provided with brand new 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, the fundamentals of real option pricing and modelling are covered, including option valuation, modelling approaches, and optimisation.
• The book also emphasises applications of theory to practical situations with worked examples that enable the reader to adopt them in their own projects.

About the Editor: 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.
He got the Ph.D. in Finance title 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. Dr. Ronn served also as Vice President, Trading Research Group at Merrill Lynch & Co. in the 90's.

Introduction - Ehud Ronn

• Historical context and taxonomy of real options, classes of problems solved (eg, spread options such as spark spread, PUD)
• Overview of subject area
• Summary of book content

Section 1. Options from Options: Financial Options Meet Real Options

• 1. Understanding Stochastic Processes - Duane Seppi
• 2. Options and Option Valuation Techniques - Steve Leppard
• 3. Diagrammatic Approach to Real Options - Steve Leppard and Fabio Cannizzo
• 4. Optimisation and Optimisation Techniques - Shannon Burchett and Deepankar Biswas
• 5. Applying Stochastic Dynamic Programming to the Valuation of Gas Storage and Generation Assets - Tom Weston
• 6. Derivative Modelling Approaches in Real Option Valuation - Sailesh Ramamurtie

Section 2. Real Options and the Energy Industry: Applying Real Option Valuation to Power Generation and Ancillary Services

• 7. Operating and Risk Managing Power Plants - Alexander Eydeland and Krzysztof Wolyniec
• 8. Power Plant Operations and Real Options - Chung-Li Tseng and Graydon Barz
• 9. Valuing and Hedging Real Options - Sailesh Ramamurtie
• 10. Peaking Plant Valuation Project: A DCF/ RO comparison - Brett Humphreys and JP St Germain
• 11. Price spikes and real options: Transmission Valuation - Michael Rosenberg, Michael Baron, Nikolai Sidorenko and Joseph D. Bryngelson
• 12. Price Interactions of Baseload Supply Changes and Electricity Demand Shocks - Gordon Sick, Mike Stein and Robert Elliott
• 13. Valuation, optimal dispatch and hedging of generation assets - Blake Johnson and Maria de Ines

Section 3. Primary Inputs: Gas and Oil

• 14. Valuation of the Operational Flexibility of Natural Gas Storage Reservoirs - Spyros Maragos
• 15. The Growth of Flexible Offshore Oil Fields - Larry Chorn and Shashidhar Rajagopalan
• 16. Valuing PUD Reserves: A Practical Application of Real Option Techniques - Dan Calistrate, John McCormack and Gordon Sick
• 17. Valuation of Petroleum Reserves with Quantity and Price Uncertainties: The Case of Woodside Energy - Stuart Connell

Section 4. Strategy and Environmental Issues in Electric Power

• 18. Real Options for Real Assets - a No Arbitrage Approach - Chris Harris
• 19. Schemes for Emissions Management, Bottom up Approaches to Internalising the Cost of Carbon Dioxide Emissions - Shannon Burchett and Deepankar Biswas

Section 5. Case Studies

• 20. Valuing Generation Assets Using Real Option Competitive Price Analysis: Step-by-Step Valuation Example for a Portfolio of Generation Assets - Frank Li
• 21. Analytical Valuation of a Full Requirements Contract as a Real Option: the Method of Eigenclaims - Valery Kholodnyi

Appendix

• Probability and Stochastic Calculus: Review of Probability Concepts - Michael Rosenberg, Michael Baron and Joseph D. Bryngelson
• An Efficient and Accurate Computational Technique for Dynamic Programming with Markov Processes - Alexander Eydeland and Daniel Mahoney

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