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Option value and optimal rotation policies for aquaculture exploitations

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  • Arantza Murillas Maza

Abstract

Evaluating an aquaculture exploitation is extremely difficult because of the high level of uncertainty regarding both the farmed resource and output prices. That is why option pricing methodology may be preferable to traditional discounted methods, that cannot properly capture the management flexibility of the exploitation. This paper presents several models, based on Real Option theory, sufficient for determining not only the value of an aquaculture exploitation under management flexibility but also, the optimal rotation policy. Moreover, the paper turns to calculate the risk of an aquaculture exploitation by using the Value at Risk (VaR) methodology. To illustrate the nature of the solutions, a case based on the ”mussel” sector in Galicia (Spain) is considered. Given the obtained value of the risk is higher than the option value itself, the mussel sector appears to be a risky sector.

Suggested Citation

  • Arantza Murillas Maza, 2003. "Option value and optimal rotation policies for aquaculture exploitations," Working Papers 0304, Universidade de Vigo, Departamento de Economía Aplicada.
    • Handle: RePEc:vig:wpaper:0304
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    References listed on IDEAS

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    1. James L. Paddock & Daniel R. Siegel & James L. Smith, 1988. "Option Valuation of Claims on Real Assets: The Case of Offshore Petroleum Leases," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 103(3), pages 479-508.
    2. Thomas A. Thomson, 1992. "Optimal Forest Rotation When Stumpage Prices Follow a Diffusion Process," Land Economics, University of Wisconsin Press, vol. 68(3), pages 329-342.
    3. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    4. Slade, Margaret E., 2001. "Valuing Managerial Flexibility: An Application of Real-Option Theory to Mining Investments," Journal of Environmental Economics and Management, Elsevier, vol. 41(2), pages 193-233, March.
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    More about this item

    Keywords

    Real Options; Value at Risk (VaR); Aquaculture Exploitations.;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • Q22 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Renewable Resources and Conservation - - - Fishery

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