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Option value and optimal rotation policies for aquaculture exploitations

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  • Arantza Murillas Maza
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    Abstract

    Evaluating an aquaculture exploitation is extremely difficult because of the high level of uncertainty regarding both the farmed resource and output prices. That is why option pricing methodology may be preferable to traditional discounted methods, that cannot properly capture the management flexibility of the exploitation. This paper presents several models, based on Real Option theory, sufficient for determining not only the value of an aquaculture exploitation under management flexibility but also, the optimal rotation policy. Moreover, the paper turns to calculate the risk of an aquaculture exploitation by using the Value at Risk (VaR) methodology. To illustrate the nature of the solutions, a case based on the ”mussel” sector in Galicia (Spain) is considered. Given the obtained value of the risk is higher than the option value itself, the mussel sector appears to be a risky sector.

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    File URL: http://webs.uvigo.es/x06/sites/default/files/wp0304.pdf
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    Bibliographic Info

    Paper provided by Universidade de Vigo, Departamento de Economía Aplicada in its series Working Papers with number 0304.

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    Length: 27 pages
    Date of creation: Mar 2003
    Date of revision:
    Handle: RePEc:vig:wpaper:0304

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    Related research

    Keywords: Real Options; Value at Risk (VaR); Aquaculture Exploitations.;

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    1. Slade, Margaret E., 2001. "Valuing Managerial Flexibility: An Application of Real-Option Theory to Mining Investments," Journal of Environmental Economics and Management, Elsevier, vol. 41(2), pages 193-233, March.
    2. Thomas A. Thomson, 1992. "Optimal Forest Rotation When Stumpage Prices Follow a Diffusion Process," Land Economics, University of Wisconsin Press, vol. 68(3), pages 329-342.
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