The Valuation of Forestry Resources Under Stochastic Prices & Inventories

Journal of Financial & Quantitative Analysis. 24(4) 473-487, Dec. 1989

University of Alberta School of Business Research Paper No. 2013-636

Posted: 8 Jun 2013

See all articles by Randall Morck

Randall Morck

University of Alberta - Department of Finance and Statistical Analysis; National Bureau of Economic Research (NBER); European Corporate Governence Institute; Asian Bureau of Finance and Economic Research

Eduardo S. Schwartz

Simon Fraser University (SFU); University of California, Los Angeles (UCLA) - Finance Area; National Bureau of Economic Research (NBER)

David A. Stangeland

University of Manitoba - Department of Accounting and Finance

Date Written: December 7, 1988

Abstract

A contingent claims approach to capital budgeting may be preferable to traditional methods were uncertainty and managers' strategic reactions to changing conditions are important. As an example of such a case, we solve the classical problem of the duration of an investment in forestry resources (i.e., when to cut down the trees) in the general case of stochastic output prices and stochastic natural growth rate and timber inventories. A contingent claims approach is used to value the forestry resources as a function of: (1) stochastic prices and inventories, and (2) an asymmetric, optimal production policy that incorporates the option to halt timber production temporarily.

Suggested Citation

Morck, Randall K. and Schwartz, Eduardo S. and Stangeland, David A., The Valuation of Forestry Resources Under Stochastic Prices & Inventories (December 7, 1988). Journal of Financial & Quantitative Analysis. 24(4) 473-487, Dec. 1989; University of Alberta School of Business Research Paper No. 2013-636. Available at SSRN: https://ssrn.com/abstract=2276200

Randall K. Morck (Contact Author)

University of Alberta - Department of Finance and Statistical Analysis ( email )

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National Bureau of Economic Research (NBER)

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European Corporate Governence Institute ( email )

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Asian Bureau of Finance and Economic Research ( email )

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Eduardo S. Schwartz

Simon Fraser University (SFU) ( email )

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Canada

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825-1953 (Phone)
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National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

David A. Stangeland

University of Manitoba - Department of Accounting and Finance ( email )

Faculty of Management
Winnipeg, MB R3T 5V4
Canada
204-474-6743 (Phone)
204-474-7545 (Fax)

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