A Real-Option Approach on Energy Security Appraisal

Shih-Mo Lin, Yuan-Chin Chen, Chih-Hsiung Tzeng


The traditional energy portfolio decision-making depends greatly on the costs of energies. However, the cost-based view of energy security would incur huge risks when the volatility of energy price dramatically increases. In addition, many scholars have dealt the risk-return problem with CAPM model. The mean-variance model considered the tradeoff between risk and return in energy portfolios and treated the energy sources such as nuclear and wind power as risk-free. Different from the previous research, in this paper we adopted a real-option approach on energy security appraisal. Beyond the risk-return tradeoff, this research takes time and price factors into consideration and thus can evaluate the effect of new energy research and development on energy security.


Energy security, real option, CAPM, dependency index, vulnerability index

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