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| Author: | Insley, M. |
| Title: | A real options approach to the valuation of a forestry investment |
| Journal: | Journal of Environmental Economics and Management
2002 : NOV, VOL. 44:3, p. 471-492 |
| Index terms: | Environmental economics Forest economics Forestry industry Valuation |
| Language: | eng |
| Abstract: | The theory of real options is used to model the optimal tree harvesting decision. The value of the option to harvest is estimated using a dynamic programming approach and a general numerical solution technique suitable for any type of stochastic process for prices. The conditions under which the optimal harvest time is independent of price are examined. It is found that option value and optimal cutting time are significantly different under the mean reversion assumption compared to geometric Brownian motion. |
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