Contributions published at Quantitative Finance (Marc Chesney)

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The goal of this article is to assess the optimal choices of a smallholder quinoa farmer in the Puno region of Peru, in terms of his decision if and when to undertake certain investments that are expected to increase quinoa yield and crop resistance to harsh weather conditions, such as frost. We focus on two irreversible options, namely quinoa variety management andWaruWaru. The former alternative considers the option of the farmer to switch from his business-as-usual quinoa variety to one that has different yield and frost resistance characteristics. The latter alternative refers to the implementation of an ancestral cultivation practice that is estimated to offer benefits in terms of yield increase and resistance to harsh climate conditions. We rely on Real Options Analysis to assess the two types of investment opportunities for the farmer. This approach allows us to determine not only whether the investments should be undertaken or not, but also the optimal timing to do so. We find that one quinoa variety (Kancolla) offers the highest benefits to the farmer and switching to this option should be immediate if investment costs are low; however, as costs increase, the decision to switch quinoa variety is optimally postponed until quinoa price uncertainty is reduced. We find that the Waru Waru option is not worth undertaking unless further evidence related to the increase in the productivity of quinoa is developed. However, at increases in productivity above 20%, the Waru Waru option becomes highly attractive. The article also discusses how quinoa price dynamics, yield sensitivity to frost, and governmental support impact decisions of the smallholder farmer.

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The goal of this paper is to assess the optimal choice of a household in California, United States, in terms of their decision if and when to undertake a certain investment in a residential scale, grid connected, solar photo-voltaic system, in order to obtain savings in their monthly expenditures in electricity. This irreversible option is then defined, mainly, by the initial cost of the solar PV system. For this purpose, Real Options Analysis is deployed to assess this investment opportunity for the household. This approach allows determining not only whether the investments should be undertaken or not, but also the optimal timing to do so. Results show it is optimal for a Californian household to invest in a photo-voltaic system, however some delay might be advised depending on the energy production factor of specific areas, and the expected useful life of the equipment. Furthermore, government intervention influencing subsidies and energy prices has a bigger effect in the length such delays and should be avoided whenever possible.

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