Séminaire commun FDD-FiME // M. Flora & P. Tankov
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Séminaire commun FDD-FiME // M. Flora & P. Tankov
18 février 2022 @ 14 h 00 min - 15 h 00 min
Maria Flora (CREST, ENSAE) & Peter Tankov (CREST, ENSAE)
Titre: Green investment and asset stranding under transition scenario uncertainty
Abstract:
We develop a real-options approach to evaluate energy assets and potential investment projects under transition scenario uncertainty. Dynamic scenario uncertainty is modelled by assuming that the economic agent acquires the information about the scenario progressively by observing a signal. The problem of valuing an investment is formulated as an American option pricing problem, where the optimal exercise time corresponds to the time of entering into a potential investment project or the time of selling a potentially stranded asset. To illustrate our approach, we apply representative scenarios from different integrated assessment models to the examples of a coal-fired power plant without Carbon Capture and Storage (CCS) and potential investment into a biomass power plant with CCS.