IDEAS home Printed from https://ideas.repec.org/h/spr/spochp/978-0-387-75181-8_16.html
   My bibliography  Save this book chapter

A Stochastic Dynamic Programming Model for Valuing a Eucalyptus Investment

In: Advances in Modeling Agricultural Systems

Author

Listed:
  • M. Ricardo Cunha

    (Faculdade de Economia e Gestão)

  • Dalila B. M. M. Fontes

Abstract

This work proposes an exercise-dependent real options model for the valuation and optimal harvest timing of a forestry investment in eucalyptus. Investment in eucalyptus is complex, as trees allow for two cuts without replantation and have a specific time and growth window in which they are suitable for industrial processing into paper pulp. Thus, path dependency in the cutting options is observed, as the moment of exercise of the first option determines the time interval in which the second option may be exercised. Therefore, the value of the second option depends on the history of the state variables rather than on its final value. In addition, the options to abandon the project or convert land to another use, are also considered. The option value is estimated by solving a stochastic dynamic programmingstochastic dynamic programming model. Results are reported for a case study in the Portuguese eucalyptus forest, eucalyptus forest which show that price uncertainty postpones the optimal cutting decisions. Moreover, optimal harvesting policies deviate from current practice of forest managers and allow for considerable gains.

Suggested Citation

  • M. Ricardo Cunha & Dalila B. M. M. Fontes, 2009. "A Stochastic Dynamic Programming Model for Valuing a Eucalyptus Investment," Springer Optimization and Its Applications, in: Panos M. Pardalos & Petraq J. Papajorgji (ed.), Advances in Modeling Agricultural Systems, pages 339-359, Springer.
    • Handle: RePEc:spr:spochp:978-0-387-75181-8_16
    DOI: 10.1007/978-0-387-75181-8_16
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Yemshanov, Denys & McCarney, Geoffrey R. & Hauer, Grant & Luckert, M.K. (Marty) & Unterschultz, Jim & McKenney, Daniel W., 2015. "A real options-net present value approach to assessing land use change: A case study of afforestation in Canada," Forest Policy and Economics, Elsevier, vol. 50(C), pages 327-336.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:spochp:978-0-387-75181-8_16. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.