A stochastic model of the South African gold mines

Beelders, Owen

A stochastic model of the South African gold mines

Master Thesis

1991

Abstract

A stochastic model of the South African Gold mines was constructed using Contingent Claims Analysis. This method allows the modelling of the major sources of uncertainty that the gold mines face, namely, uncertainty surrounding the future gold price, the exchange rate, the inflation rate, and the interest rate. The trajectories of these variables were modelled by stochastic differential equations. By applying the principles of contingent claims analysis, we could obtain a valuation partial differential equation that described the value of the mine contingent on the current values of the state variables mentioned above. This partial differential equation was solved by the Monte Carlo method and the solution was compared to current estimates of the mines' value.

Keywords

Gold Mines

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