Investment planning under uncertainty and flexibility: the case of a purchasable sales contract
Investment decisions are not only characterised by irreversibility and uncertainty but also by flexibility with regard to the timing of the investment. This paper describes how stochastic simulation can be successfully integrated into a backward recursive programming approach in the context of flexible investment planning. We apply this hybrid approach to a marketing question from primary production which can be viewed as an investment problem: should grain farmers purchase sales contracts which guarantee fixed product prices over the next 10 years? The model results support the conclusion from dynamic investment theory that it is essential to take simultaneously account of uncertainty and flexibility.
Volume (Year): 52 (2008)
Issue (Month): 1 (March)
|Contact details of provider:|| Postal: AARES Central Office Manager, Crawford School of Public Policy, ANU, Canberra ACT 0200|
Phone: 0409 032 338
Web page: http://www.aares.info
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kyösti S. Pietola & Robert J. Myers, 2000. "Investment under Uncertainty and Dynamic Adjustment in the Finnish Pork Industry," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 82(4), pages 956-967.
- Parkinson, Michael, 1977. "Option Pricing: The American Put," The Journal of Business, University of Chicago Press, vol. 50(1), pages 21-36, January.
- Robert McDonald & Daniel Siegel, 1986. "The Value of Waiting to Invest," The Quarterly Journal of Economics, Oxford University Press, vol. 101(4), pages 707-727.
- Odening, Martin & Mu[ss]hoff, Oliver & Hirschauer, Norbert & Balmann, Alfons, 2007. "Investment under uncertainty--Does competition matter?," Journal of Economic Dynamics and Control, Elsevier, vol. 31(3), pages 994-1014, March.
- Brennan, Michael J & Schwartz, Eduardo S, 1977. "The Valuation of American Put Options," Journal of Finance, American Finance Association, vol. 32(2), pages 449-462, May.
- Pietola, Kyosti & Myers, Robert J., 1998. "Investment Under Uncertainty And Dynamic Adjustment In Finnish Pork Industry," 1998 Annual meeting, August 2-5, Salt Lake City, UT 20953, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
- Oliver Musshoff & Norbert Hirschauer, 2008. "Adoption of organic farming in Germany and Austria: an integrative dynamic investment perspective," Agricultural Economics, International Association of Agricultural Economists, vol. 39(1), pages 135-145, 07.
- Boyle, Phelim P., 1988. "A Lattice Framework for Option Pricing with Two State Variables," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 23(01), pages 1-12, March.
- Janis M. Carey & David Zilberman, 2002. "A Model of Investment under Uncertainty: Modern Irrigation Technology and Emerging Markets in Water," American Journal of Agricultural Economics, Agricultural and Applied Economics Association, vol. 84(1), pages 171-183.
- Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
- Ibáñez, Alfredo & Zapatero, Fernando, 2004. "Monte Carlo Valuation of American Options through Computation of the Optimal Exercise Frontier," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 39(02), pages 253-275, June.
- Darren Hudson & Keith Coble & Jayson Lusk, 2005. "Consistency of risk premium measures," Agricultural Economics, International Association of Agricultural Economists, vol. 33(1), pages 41-49, 07.
- Kuminoff, Nicolai V. & Wossink, Ada, 2005. "Valuing the Option to Convert from Conventional to Organic Farming," 2005 Annual meeting, July 24-27, Providence, RI 19531, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
- Marchant, Mary A. & Murrell, Courtney Paige & Zhuang, Jun, 2004. "Investment Analysis Of Replacing Endophyte-Infected With Endophyte-Free Tall Fescue Pastures," 2004 Annual Meeting, February 14-18, 2004, Tulsa, Oklahoma 34630, Southern Agricultural Economics Association.
- Martin Odening & Oliver Mußhoff & Alfons Balmann, 2005. "Investment decisions in hog finishing: an application of the real options approach," Agricultural Economics, International Association of Agricultural Economists, vol. 32(1), pages 47-60, 01.
When requesting a correction, please mention this item's handle: RePEc:ags:aareaj:117741. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (AgEcon Search)
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.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.