This paper investigates the impact of including the risk of fire in an optimal tree harvesting model at the stand level, assuming timber prices follow a mean-reverting stochastic process. The relevant partial differential equation is derived under different assumptions about hedging the risk of...

This paper develops a model of a profit maximizing firm with the option to exploit a non-renewable resource, choosing the timing and pace of development. The resource price is modelled as a regime switching process, which is calibrated to oil futures prices. A Hamilton-Jacobi-Bellman equation is...

Large water demands by the mining industry are of increasing concern around the world. The cost of a specific water management regulation is studied for an oil sands mining operation in Canada, where restrictions on water withdrawals vary with fluctuations in the river. A stochastic optimal...

This paper uses a real options approach to examine the impact of ramping rate restrictions imposed on hydro operations to protect aquatic ecosystems. We consider the effect on profits from electricity generation in order to inform policy decisions about ramping rate restrictions. A novelty of...

Optimal decisions of a firm facing the option of retrofitting its plant to reduce pollution and thereby eliminate the need to purchase emissions allowances are analysed. The decision is treated as a real option with the price of pollution permits following a known stochastic process. The model...

This paper studies the impacts of an environmental bond, which fully covers waste cleanup costs, on a mining firm's optimal actions over the full life cycle of a mine, when bankruptcy may shift cleanup costs to the government. A firm's stochastic optimal control problem is described by an HJB...

The optimal management of a non-renewable resource extraction project is studied when input and output prices follow correlated stochastic processes. The decision problem is specified by two Bellman equations describing the project when it is currently operating or mothballed. Solutions are...

This paper investigates whether convenience yield is an important factor in determining optimal decisions for a forestry investment. The Kalman filter method is used to estimate three different models of lumber prices: a mean reverting model, a simple geometric Brownian motion and the two-factor...

This paper examines the strategic interactions of two large regions making choices about greenhouse gas emissions in the face of rising global temperatures. A focus is on three central features of the problem: uncertainty, the incentive for free riding, and asymmetric characteristics of decision...