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Strategic Analysis Of Forest Investments Using Real Option: The Fuzzy Pay-Off Model (Fpom)

Author

Listed:
  • Milanesi, Gastón S.

    (Departamento de Ciencias de la Administración, Universidad Nacional del Sur)

  • Broz, Diego

    (Departamento de Ciencias de la Administración, Universidad Nacional del Sur)

  • Tohmé, Fernando

    (Departamento de Economía, Universidad Nacional del Sur
    CONICET)

  • Rossit, Daniel

    (Departamento de Ingeniería, Universidad Nacional del Sur.
    CONICET)

Abstract

This paper introduces a fuzzy forestry investment decision-making tool based. It will be applied to choose optimal levels of investment when three possible scenarios are conceived, a base case and two extreme alternatives: optimistic and pessimistic. Decision-makers can be seen as being either owners of a forest or investors. For each of these roles the possibility degrees of the scenarios may be represented by means of fuzzy numbers, representing ambiguous net present values (NPV). Real option values (ROV) are then computed based on them. The application to a potential forestry project in Argentina shows that, while in the case of an owner of forestry project the expected benefits are both positive under NPV and ROV, an investor would discard the project if she assumes equal weights for the scenarios in a traditional analysis but would accept it under the fuzzy approach.

Suggested Citation

  • Milanesi, Gastón S. & Broz, Diego & Tohmé, Fernando & Rossit, Daniel, 2014. "Strategic Analysis Of Forest Investments Using Real Option: The Fuzzy Pay-Off Model (Fpom)," Fuzzy Economic Review, International Association for Fuzzy-set Management and Economy (SIGEF), vol. 0(1), pages 33-44, May.
    • Handle: RePEc:fzy:fuzeco:v:xix:y:2014:i:1:p:33-44
    as

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    More about this item

    Keywords

    fuzzy number; NPV (net present value); ROV (real option value);
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • C65 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Miscellaneous Mathematical Tools

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