Finance and Financial Management Commons^™

A Binomial Lattice Approach For Valuing A Mining Property Ipo, Simone Kelly

Simone Kelly

The last decade has witnessed an emerging literature that applies option pricing methods to evaluate claims on real assets. Previous research has applied option pricing to the optimal investment timing decision for the firm. This paper applies a binomial lattice approach to the valuation of a gold mine at the time of its initial public offering. The paper has two goals: (1) to demonstrate how to derive the value of the investment timing option using publicly available information contained in a prospectus, and (2) to relate the value derived from the option model to the final offer price of the …