On Solving the Multirotational Timber Harvesting Problem with Stochastic Prices: a Linear Complementarity Formulation
نویسندگان
چکیده
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.
منابع مشابه
The Dynamic Behavior of Efficient Timber Prices
The authors acknowledge helpful comments from seminar participants at the University of California-Davis and the 2001 American Agricultural Economics Association meeting, where earlier versions of this paper were presented. Abstract: The problem of when to optimally harvest trees when timber prices evolve according to an exogenous stochastic process has been studied extensively in recent decade...
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