Option Pricing by the Nonrenewable Resource Extracting Firm Facing Output Price Uncertainty

We establish a general preference for price uncertainty by the pricetaking, risk neutral, nonrenewable resource extracting firm with orthodox convex extraction costs. Option prices for delivery of a ton at a particular date in the future exceed the expected dollar return from the purchase of the option. The dependence of option price on initial stock size takes a simple form. Other comparative static results are reported.