RT Journal Article
T1 Valuing Forestry Agronomic Potential under Seasonal Mean-Reverting Prices
A1 León Valle, Angel Manuel
A1 Marín Ramírez, Eyda Lucía
A1 Toscano Pardo, David
AB In the valuation of forest resources, the alternative use of the land is one of the centralthemes. In most cases it is made without taking into account the uncertainty and the possible flexibilityof the alternative use. Within these alternatives, the strategy of shifting to a more profitable andsustainable crop is a well-studied topic in forest research. Although the transformation opportunitycould add great value to the project, the valuation of this flexibility is obviated by traditionaldiscounted cashflow criteria (NPV). The application of real options theory (ROT) makes it possibleto assess this flexibility based on the uncertainty that the transformation entails. However, thehypotheses that are made about the future evolution of the underlying asset, in this case the valueof the new crop, may condition the precision of the result. Usually some researchers model theseconversions under the hypothesis of geometric Brownian motion (GBM), hypotheses that are notplausible when the new crop has a strong seasonal component. In this work, an adapted modelframework is proposed to evaluate forest transformation opportunity into another crop when landuse has both high agronomic potential and high seasonal component, a context in which classic realoptions framework is not applicable. As a work based on a theoretical model, after methodologicalmotivation, the strawberry crop is chosen as alternative due to its seasonal component. Using privatedata for this crop, we model through the Ornstein–Uhlenbeck process, with mean-reversion (MR)to a seasonal component, and then we use of Longstaff and Schwartz’s algorithm to calculate theoption value. The results show that when considering flexibility in option valuation it leads to anincrease on the return of more than 4%. Furthermore, robustness analysis evidence shows that optionvalue is very sensitive to seasonal component, reinforcing previous evidence that suggests that theMR process offers a more accurate and appropriate valuation over the traditional GBM in the arenaof agronomic potential valuation. Specifically, the result of valuing this transformation through theMR process is between 1.5 and 1.7 times the value of the NPV, which results in approximately a13% annual return. If GBM had been used, the valuation would have been a 72% annual return,an unrealistic result
PB MDPI
SN 1999-4907 (electrónico)
YR 2023
FD 2023-06-27
LK https://hdl.handle.net/10272/23254
UL https://hdl.handle.net/10272/23254
LA eng
NO León, Á., Marín, E., & Toscano, D. (2023). Valuing Forestry Agronomic Potential under Seasonal Mean-Reverting Prices. In Forests (Vol. 14, Issue 7, p. 1317). MDPI AG. https://doi.org/10.3390/f14071317
NO This study was funded by the Spanish Government MCIN/AEI/10.13039/501100011033, Grant PID2020-114563GB-I00, by Research Projects UHUPI00005-1085 for the promotion of basic knowledge-Research and Transfer Policy Strategy 2021 at University of Huelva (Spain), by Spanish Government under project PID2021-124860NB-I00 and from the Generalitat Valenciana under project CIPROM/2021/060.
DS Repositorio Institucional de la Universidad de Huelva
RD 30 may 2026