This paper investigates a regime switching model of stochastic lumber prices in the context of an optimal tree harvesting problem. Using lumber derivatives prices, two lumber price models are calibrated: a regime switching model and a single regime model. In the regime switching model, the lumber price can be in one of two regimes in which different mean reverting price processes prevail. An optimal tree harvesting problem is specified in terms of a linear complementarity problem which is solved using a fully implicit finite difference, fully-coupled, numerical approach. The land value and critical harvesting prices are found to be significantly different depending on which price model is used. The regime switching model shows promise as a parsimonious model of timber prices that can be incorporated into forestry investment problems.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by University of Waterloo, Department of Economics in its series Working Papers with number
08003.
References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Did you know? Each page is provided with a technical contact, in case something is not right with the supplied information. See under "publisher info".