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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: tyc:> who wrote (105137)5/28/2001 11:56:06 AM
From: LLCF  Read Replies (1) of 436258
 
<There is a concept in the mining industry described as "the option value of a mine">. <What I am really trying to determine is whether an interest rate factor should be reckoned into the option value. Or should we just figure in the price volatility of the commodity ? Hence my interest in the arbitrage involved.>

Yep, I'd use the cost of production for the strike and yes you must take interest rates into account as does the Black Scholes option pricing model... you can find it at CBOE.com... I'd put zero dividends in the model and use the 4 year spot interest rate but there are arguments to use shorter rates.

DAK
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