Three Essays on Real Options Analysis of Forestry Investments Under Stochastic Timber Prices PDF Download
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Author: Rajender Prasad Khajuria
Publisher:
ISBN: 9780494580202
Category :
Languages : en
Pages : 248
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Book Description
This thesis has applied the theory of real options to study forestry investment decision-making under stochastic timber prices. Suitable models have been developed for the stochastic timber prices, after addressing major issues in characterisation of the price process. First, the assumption of stochastic timber price process was based on detailed unit root tests, incorporating structural breaks in time-series analysis. The series was found to be stationary around shifting mean, justifying the assumption of mean reversion model. Due to shift in the mean, long-run mean to which the prices tended to revert could not be assumed constant. Accordingly, it was varied in discreet steps as per the breaks identified in the tests. The timber price series failed the normality test implying fat tails in the data. To account for these fat tails, 'jumps' were incorporated in the mean reversion model. The results showed that the option values for the jump model were higher than the mean reversion model and threshold levels for investment implied different optimal paths. Ignoring jumps could provide sub-optimal results leading to erroneous decisions. Second, the long-run mean to which prices reverted was assumed to shift continuously in a random manner. This was modeled through the incorporation of stochastic level and slope in the trend of the prices. Since the stochastic level and slope were not observable in reality, a Kalman-filter approach was used for the estimation of model parameters. The price forecasts from the model were used to estimate option values for the harvest investment decisions. Third, investment in a carbon sequestration project from managed forests was evaluated using real options, under timber price stochasticity. The option values and threshold levels for investment were estimated, under baseline and mitigation scenarios. Results indicated that carbon sequestration from managed forests might not be a viable investment alternative due to existing bottlenecks. Overall, the research stressed upon the need for market information and adaptive management, with a pro-active approach, for efficient investment decisions in forestry.
Author: Rajender Prasad Khajuria
Publisher:
ISBN: 9780494580202
Category :
Languages : en
Pages : 248
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Book Description
This thesis has applied the theory of real options to study forestry investment decision-making under stochastic timber prices. Suitable models have been developed for the stochastic timber prices, after addressing major issues in characterisation of the price process. First, the assumption of stochastic timber price process was based on detailed unit root tests, incorporating structural breaks in time-series analysis. The series was found to be stationary around shifting mean, justifying the assumption of mean reversion model. Due to shift in the mean, long-run mean to which the prices tended to revert could not be assumed constant. Accordingly, it was varied in discreet steps as per the breaks identified in the tests. The timber price series failed the normality test implying fat tails in the data. To account for these fat tails, 'jumps' were incorporated in the mean reversion model. The results showed that the option values for the jump model were higher than the mean reversion model and threshold levels for investment implied different optimal paths. Ignoring jumps could provide sub-optimal results leading to erroneous decisions. Second, the long-run mean to which prices reverted was assumed to shift continuously in a random manner. This was modeled through the incorporation of stochastic level and slope in the trend of the prices. Since the stochastic level and slope were not observable in reality, a Kalman-filter approach was used for the estimation of model parameters. The price forecasts from the model were used to estimate option values for the harvest investment decisions. Third, investment in a carbon sequestration project from managed forests was evaluated using real options, under timber price stochasticity. The option values and threshold levels for investment were estimated, under baseline and mitigation scenarios. Results indicated that carbon sequestration from managed forests might not be a viable investment alternative due to existing bottlenecks. Overall, the research stressed upon the need for market information and adaptive management, with a pro-active approach, for efficient investment decisions in forestry.
Author: Rajender Khajuria
Publisher:
ISBN:
Category :
Languages : en
Pages :
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Book Description
Author: Bin Mei
Publisher: Taylor & Francis
ISBN: 1000883833
Category : Business & Economics
Languages : en
Pages : 231
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Book Description
Forestland investment has surged in the past few decades as a result of land ownership change in the forestry industry. Timberland investment and management organizations and real estate investment trusts have bought up land and resources that were divested by vertically integrated forest products companies. This book provides a seminal coverage of this seismic shift in the industry, exploring the philosophy, driving factors, valuation, theory, research, implementation, practice, and effects of forestland investment. Across 15 chapters the book reviews the history of forestland investment; discusses the optimal forest rotation; explains timberland appraisal; examines the return drivers of forestland; analyzes timberland index construction methods and results; prices timberland assets; reviews financial and real options; investigates real option values in forestland management; evaluates timber harvest contracts; examines new opportunities in the emerging woody bioenergy market; and eventually offers prospects on forestland investment in the future. It also discusses how forest carbon can be used as a nature-based climate solution. This book is essential reading for forestry business students and scholars, as well as practitioners and policymakers in the industry.
Author: Andrew Plantinga
Publisher:
ISBN:
Category : Forests and forestry
Languages : en
Pages : 24
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Book Description
This bulletin considers option values related to a principal problem for forestry investors, the timing of harvests. The purpose is to present a general theory of the rotation problem under uncertainty and irreversibility and provide a methodology for empirically estimating option values. Modifications of the framework for analyzing options values related to other aspects of forestry investments are also discussed.
Author: Stavislav Petrasek
Publisher:
ISBN:
Category : Forests and forestry
Languages : en
Pages : 125
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Book Description
Author: Robert John Engelhard
Publisher:
ISBN:
Category : Forest management
Languages : en
Pages : 16
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Book Description
Author: Laurence Henri Reeves
Publisher:
ISBN:
Category :
Languages : en
Pages : 268
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Book Description
Author: John E. Gunter
Publisher:
ISBN:
Category : Business & Economics
Languages : en
Pages : 354
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Book Description
Author: Shane Christopher Conway
Publisher:
ISBN:
Category :
Languages : en
Pages : 62
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Book Description
Timberland investments in northern hardwood forests are generally at lower per acre values as a result of slower growth rates and less frequent harvest activity. This creates an opportunity for competing land use values to exceed timberland values, and presents a portfolio manager the opportunity to increase their return by capitalizing on arbitrage. The goal of this thesis is to attempt to determine the value of this optionality by using real options analysis and Monte Carlo simulation. Combining historical data on timber prices and land values in the state of Wisconsin with a simulation technique will allow for a robust valuation of this real option as well as the illustration of the value's sensitivity to key variables. A successful outcome will result in additional support for the use of real options in practice, particularly in the timberland investment industry.
Author: A. Ghebremichael
Publisher:
ISBN:
Category : Business & Economics
Languages : en
Pages : 80
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Book Description
This guide has been prepared to assist forest managers and planners in the use of economic analysis techniques. It uses simplified analytical methods, hands-on exercises, and two case studies to provide a working understanding of the principles and techniques of financial and economic analyses. Topics covered include: the unique characteristics of timber production; the time value of money and cash flows; different series of cash flows (present and future values); decision criteria such as payback period, rate of return, net present value, cost-benefit ratio, equivalent annual income, and annual rent; applications of criteria to single stand level decisions and to forest-wide decisions; special topics, including recent developments in discounting theory; and accounting for perspectives from private enterprise, the public sector, and society as a whole. The appendix contains two case studies on jack pine thinning and regeneration.
