Models use for natural resources prices usually preclude the possibility of large changes (jumps) resulting from discrete, unexpected events. To test for the presence of jumps and ARCH effects, we propose to use bounds and bootstrap test techniques, thus solving the unidentified nuisance parameter problem. We apply this approach to stumpage price time series from the Pacific Northwest and find evidence of jumps and ARCH effects. Using real options, we then develop a stopping model to assess the impact of neglecting jumps on the decision to harvest old-grothw timber. Our numerical results show the importance of modeling jumps explicitly.
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Paper provided by Laval - Recherche en Energie in its series Papers with number
00-03.
Find related papers by JEL classification: C15 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: General - - - Statistical Simulation Methods C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation and Testing G12 - Financial Economics - - General Financial Markets - - - Asset Pricing Q23 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Forestry
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