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Valuing a timber harvest contract as a high-dimensional American call option via least-squares Monte Carlo simulation

Publication ,  Journal Article
Mei, B; Clutter, ML
Published in: Natural Resource Modeling
January 1, 2013

Industrial timberland ownership in the United States has shifted substantially in the last 20 years. Having sold their fee-owned timberlands, forest products companies relied heavily on the open market for raw timber. To reduce their exposure to market risks, however, forest products companies have been using a number of supply chain instruments, such as timber harvest contracts. As these vehicles become increasingly important to the forest industry, it is necessary and important to determine their economic values. In this study, we treated a 3-year timber harvest contract on a 30-year-old loblolly pine plantation as a high-dimensional American call option and calculated its value by the least-squares Monte Carlo simulation technique. The estimated values of such a contract ranged from $1,693/ac to $1,984/ac under two timber price assumptions. With reasonable starting timber prices and strike price in the simulation, random timber prices led to higher contract values. Results from this study can help private landowners, timber brokers, and forest products companies better manage their business risks. © 2012 Wiley Periodicals, Inc.

Duke Scholars

Published In

Natural Resource Modeling

DOI

EISSN

1939-7445

ISSN

0890-8575

Publication Date

January 1, 2013

Volume

26

Issue

1

Start / End Page

111 / 129

Related Subject Headings

  • 1402 Applied Economics
  • 0502 Environmental Science and Management
  • 0102 Applied Mathematics
 

Citation

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Mei, B., & Clutter, M. L. (2013). Valuing a timber harvest contract as a high-dimensional American call option via least-squares Monte Carlo simulation. Natural Resource Modeling, 26(1), 111–129. https://doi.org/10.1111/j.1939-7445.2012.00123.x
Mei, B., and M. L. Clutter. “Valuing a timber harvest contract as a high-dimensional American call option via least-squares Monte Carlo simulation.” Natural Resource Modeling 26, no. 1 (January 1, 2013): 111–29. https://doi.org/10.1111/j.1939-7445.2012.00123.x.
Mei, B., and M. L. Clutter. “Valuing a timber harvest contract as a high-dimensional American call option via least-squares Monte Carlo simulation.” Natural Resource Modeling, vol. 26, no. 1, Jan. 2013, pp. 111–29. Scopus, doi:10.1111/j.1939-7445.2012.00123.x.
Journal cover image

Published In

Natural Resource Modeling

DOI

EISSN

1939-7445

ISSN

0890-8575

Publication Date

January 1, 2013

Volume

26

Issue

1

Start / End Page

111 / 129

Related Subject Headings

  • 1402 Applied Economics
  • 0502 Environmental Science and Management
  • 0102 Applied Mathematics