I am looking for annual volatility of West Texas Intermediate crude oil to determine the value of an option on a project. A project will become more valuable over the next 2 years unless crude declines. Therefore I am trying to determine the value on an option to do the project 1 or 2 years later. If there is no option then the choice is buy now or never. I am using a 10 year treasury at 2.31% as the risk free rate. I am using the NPV of the project along with the associated NPV for CAPEX and Revenues I am trying to use this paper as well. https://hbr.org/1998/07/investment-opportunities-as-real-options-getting-started-on-the-numbers
10 year rate is too far away... you should use about 1.5% Although.... the futures don't exactly follow that line of thought, since it's a commodity. So you need to know what the 1 year out WTI future would trade at and use that as the spot, without an interest rate. So you should look at seasonality etc. I think that the OCT'18 future would trade around 51? Kinda guessing here... July'18 is at 51 now, with Nov'17 at 50.45 and Dec'17 at 50.77 If you look at the WTI options... it seems the ATM vol kinda levels out after a few months so looking at feb'18 IV is about 28.4... I don't see why 6 months further isn't roughly the same. Then add skew for whatever strike you need, about +10% for 1sd down and about -7 to -10% for 1 sd up.