Combining Forest-Level Analysis with Options Valuation Approach—A New Framework for Assessing Forestry Investment

Author： Yin R.

Publisher： Society of American Foresters

ISSN： 0015-749X

Source： Forest Science, Vol.47, Iss.4, 2001-11, pp. : 475-483

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Abstract

The conventional forest investment assessment at the stand level has difficulty dealing with multiple decisions and capturing the operational flexibility involved in timber production. By combining forest-level analysis with the options valuation approach, this article suggests a new framework for forestry investment assessment. We first articulate the new framework and discuss a few technical issues encountered in adopting it. Then, we present three empirical examples (entry decision, land acquisition, and harvest timing) to illustrate how forest-level analysis and/or real options valuation can be done and what we may learn from this type of exercise. We believe that while adopting this new framework entails challenges, it represents a great opportunity to expand the field of forest investment assessment. FOR. SCI. 47(4):475–483.