On Solving the Multirotational Timber Harvesting Problem with Stochastic Prices: A Linear Complementarity Formulation
This article develops a two-factor real options model of the harvesting decision over infinite rotations assuming a known stochastic price process and using a rigorous Hamilton-Jacobi-Bellman methodology. The harvesting problem is formulated as a linear complementarity problem that is solved numerically using a fully implicit finite difference method. This approach is contrasted with the Markov decision process models commonly used in the literature. The model is used to estimate the value of a representative stand in Ontario's boreal forest, both when there is complete flexibility regarding harvesting time and when regulations dictate the harvesting date. Copyright 2005 American Agricultural Economics Association.
Year of publication: |
2005
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Authors: | Insley, Margaret ; Rollins, Kimberly |
Published in: |
American Journal of Agricultural Economics. - American Agricultural Economics Association. - Vol. 87.2005, 3, p. 735-755
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Publisher: |
American Agricultural Economics Association |
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