Friday, 9 June 2017

Elon Musk, Hydrogen, and Option Pricing Theory

Source: African Hydrogen Power, 9th June 2017, by Siggi Huegemann

Flexibility is a real option. Options have value and can be priced using option pricing models, e.g. Black-Scholes.

The hydrogen fuel cell technology offers a lot more flexibility than battery technology. In this context, the high energy density of hydrogen is the most important aspect. Those real options make the hydrogen fuel cell technology so valuable.

Elon Musk said, "I just think that they're extremely silly... it's just very difficult to make hydrogen and store it and use it in a car," Musk said at the time. "If you, say, took a solar panel and use that... to just charge a battery pack directly, compared to split water, take hydrogen, dump oxygen, compress hydrogen... it is about half the efficiency."

The value of the options associated with hydrogen fuel cell technology will outweigh the "lack of efficiency".

Mr. Market is always right. He understands option pricing theory and the value of high energy density options.

BTW, Mr. Hydrogen Fuel Cell Bus Market and Mr. Hydrogen Fuel Cell Drones Market are already right.