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Evaluation of an iron ore price forecast using a geometric Brownian motion model

2019; Gorceix Foundation; Volume: 72; Issue: 1 suppl 1 Linguagem: Inglês

10.1590/0370-44672018720140

2448-167X

André Lubene Ramos, Douglas Batista Mazzinghy, Viviane da Silva Borges Barbosa, Michel Melo Oliveira, Gilberto Rodrigues da Silva,

Mineral Processing and Grinding

Mining projects are often budgeted in millions of dollars, making it of interest to the investor to measure a project's uncertainties and risks, which include the changes in the commodity price. The simulation of asset prices is valid because it enables displaying, with a degree of certainty, the future behavior of a financial asset. One of the most commonly used mathematical forecast models is the Geometric Brownian Motion (GBM) model. This article aims at simulating the forecast price of an iron ore commodity with the GBM method based on the historical price series and comparing it to other forecast approaches used in the financial market. The results of this study indicate that the model has limitations, which should be considered. However, it is an overall good tool to support the economic evaluation of a project, if performed along with other approaches.