Hostname: page-component-586b7cd67f-gb8f7 Total loading time: 0 Render date: 2024-11-27T14:39:12.055Z Has data issue: false hasContentIssue false
  • English
  • Français

The Valuation of Forestry Resources under Stochastic Prices and Inventories

Published online by Cambridge University Press:  06 April 2009

Randall Morck ,
Eduardo Schwartz  and
David Stangeland
Get access Rights & Permissions [Opens in a new window]

Abstract

A contingent claims approach to capital budgeting may be preferable to traditional methods where uncertainty and managers' strategic reactions to changing conditions are important. As an example of such a case, we solve the classical problem of the duration of an investment in forestry resources (i.e., when to cut down the trees) in the general case of stochastic output prices and stochastic natural growth rate and timber inventories. A contingent claims approach is used to value the forestry resources as a function of: (1) stochastic prices and inventories, and (2) an asymmetric, optimal production policy that incorporates the option to halt timber production temporarily.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 24 , Issue 4 , December 1989 , pp. 473 - 487
Copyright
Copyright © School of Business Administration, University of Washington 1989

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Binkley, C. S., and Washburn, C. L.. “The Diversification Potential of U.S. Forestry Investments: A Comment with Examples from the U.S. South.” Unpubl. manuscript, School of Forestry and Environmental Studies, Yale Univ. (1988).Google Scholar
Braun, M.Differential Equations and their Applications. New York: Springer Verlag (1975).CrossRefGoogle Scholar
Brennan, M. J. “The Supply of Storage.” American Economic Review, 48 (03 1958), 50–72.Google Scholar
Brennan, M. J. “The Cost of Convenience and the Pricing of Commodity Contingent Claims.” Unpubl. manuscript, Univ. of British Columbia (1986).Google Scholar
Brennan, M. J., and Schwartz, E. S.. “Evaluating Natural Resource Investments.” Journal of Business, 58 (04 1985), 135–157.CrossRefGoogle Scholar
Cox, J.; Ingersoll, J.; and Ross, S.. “An Intertemporal Asset Pricing Model with Rational Expectations.” Econometrica, 53 (03 1985), 363–384.CrossRefGoogle Scholar
Gibson, R., and Schwartz, E. S.. “The Valuation of Long-Term Oil Linked Assets.” Working Paper, UCLA (1989).Google Scholar
Kaldor, N. “Speculation and Economic Stability.” Review of Economical Studies, 7 (1939), 1–27.CrossRefGoogle Scholar
Merton, R. C. “An Intertemporal Capital Asset Pricing Model.” Econometrica, 41 (09. 1973), 867–887.CrossRefGoogle Scholar
Mills, W. L. “Forestland: Investment Attributes and Diversification Potential.” Journal of Forestry, 86 (01 1988), 19–24.Google Scholar
Myers, S. C., and Majd, S.. “Calculating Abandonment Value Using Option Pricing Theory.” Working Paper 1462–83, Sloan School, MIT (1983).Google Scholar
Telser, L. G. “Futures Trading and the Storage of Cotton and Wheat.” In Selected Writings on Futures Markets, Peck, A. E., ed. Chicago: Chicago Board of Trade (1977).Google Scholar
Working, H. “The Theory of Price of Storage” Reprinted in Selected Writings on Futures Markets, Peck, A. E., ed. Chicago: Chicago Board of Trade (1977).Google Scholar