VALUATION OF INVESTMENTS IN REAL ASSETS WITH IMPLICATIONS FOR THE STOCK-PRICES

A general model for the valuation of natural resource investments is f ormulated and analyzed within a stochastic control theoretic framework . Using dynamic programming, the value of such an investment with a ge neral payoff function is determined under the assumption that the comm odity price process is given by a stochastic differential equation. Th e analysis results in closed form analytic solutions which can easily be computed and exhibits qualitatively different optimal behaviors, de pending on parameter values. Implications for stocks and options are a lso considered.