A REAL OPTIONS APPROACH TO THE DETERMINATION OF OPTIMAL HARVESTING AGE FOR TWO KINDS OF FOREST MANAGEMENT

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Diego Ricardo Broz Guillermo B. M. Woitschach Gastón Milanesi

Abstract

 It was studied Real Options approach as a financial-economic tool for strategic decision-making in the determination of optimal harvesting age in two kinds of forestry exploitation, a high-value one and a pulp-producing unit. It is assumed that the projection of selling prices of the byproducts follows a Brownian geometric stochastic process, while production is determined by means of a simulation of forestry turnover. The decision of when to harvest arises from the comparison, at each period, of the cash-flow at each node ( ) of a binomial lattice and its expected value in the next period ( ). The Real Values approach indicates that the optimal ages are at 18 years for high-value units and 17 years for pulp producing ones. 

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How to Cite
BROZ, Diego Ricardo; WOITSCHACH, Guillermo B. M.; MILANESI, Gastón. A REAL OPTIONS APPROACH TO THE DETERMINATION OF OPTIMAL HARVESTING AGE FOR TWO KINDS OF FOREST MANAGEMENT. CERNE, [S.l.], v. 20, n. 1, p. 89-96, apr. 2016. ISSN 2317-6342. Available at: <http://cerne.ufla.br/site/index.php/CERNE/article/view/964>. Date accessed: 23 sep. 2019.
Keywords
Binomial grid, shift, exotic option.
Section
Article