Date of Award
5-2013
Document Type
Dissertation
Degree Name
Doctor of Philosophy (PhD)
Legacy Department
Applied Economics
Committee Chair/Advisor
Templeton, Scott R
Committee Member
Cushing , Tamara
Committee Member
Brannan , James
Committee Member
Lamie , R D
Abstract
In the first essay, a critical examination of three commonly used stochastic price processes is presented. Each process is described and rejected as a possible model of lumber futures prices. A mean reverting generalized autoregressive conditional heteroskedasticity (GARCH) model, developed by Bollerslev (1986), is proposed as a stochastic process for lumber futures prices. The essay provides the steps that should be taken to ensure that a proper price process is used in each application.
In the second essay, a flexible harvesting strategy known as the reservation price strategy is presented. When the current price is below the reservation price, the forest owner delays the harvest. An optimal stopping model is used to derive an expression for the optimal sequence of reservation prices under price uncertainty. A solution method using a Monte Carlo backward recursion algorithm is presented. The Monte Carlo simulation procedure may be applied when analytical solutions are difficult or intractable.
In the third essay, a simulation model is used to estimate the per acre value of land devoted to timber production under different harvesting strategies, stumpage price processes, and site qualities. By following the reservation price strategy, forest owners can increase the expected prots from timber harvesting and reduce the variability in profits from timber harvesting relative to a fixed rotation strategy. For an estimated
mean reverting GARCH process, the reservation price strategy increases the value of timberland by 33.0 percent for a site index of 90 and by 22.1 percent for a site index of 60 relative to a fixed rotation strategy.
Recommended Citation
Campbell, Wallace, "Valuation of timberland under price uncertainty" (2013). All Dissertations. 1100.
https://open.clemson.edu/all_dissertations/1100