Multiple Cutting Decision Based On Real Options To Discuss

The decision of timber harvesting always comes with the assessing of forest land value. The policy guidance in the field of our country’s forestry production limits the process of marketization, and also restricts the development of the theory of the decision of timber harvesting. However, considering the reform of forest tenure, the natural forests will be publicly owned, and the plantation will be marketization. With the tilt of the policy, the harvesting quota of natural forests will become increasingly less, so, harvesting decision is bound to be more market-oriented. Harvesting decisions of plantation will consider how to maximize the revenue. Therefore, the harvesting decision-making mechanism as a whole is also bound to make a change. And it is necessary to discuss the theory of harvesting decision. Traditional economic theory suggests that the harvesting decisions of forest are determined by the net present value, but models of early time did not consider the factors of the real options. This leads to a mistake of forest land value assessment, and has problem to explain the intensity of forest harvesting decision-making. The rapid development of option pricing theory since the1970s also brought the innovation of the timber harvesting decision theory. Some classical methods such as binary tree and Markov Decision Processes appeared since then. The above methods have their inadequacies, the specific values of key parameters of binary tree application are unknown. So the solution based on the assumptions of parameter leads to more weakness in the solution of practical problems. At the same time, it is difficult to solve the problem in an indefinite period. To solve Markov Decision Processes, it is first need to derive the transition probability matrix, and thus is an indirect solution, makes it more complicated.This article makes some improvements based on the Hamilton-Jacobi-Bellman by adding the factor of real options. The result of the model shows that wood price and the volatility of the price have a positive impact to forest land value. Timber production will increase as the price of timber and volatility of the price rise. Compared to the existing assessment system of forest land value, the model considers the impact of price volatility. Although the conclusion is simple and straightforward, the domestic scholars have no inspection of the timber price volatility on the impact of timber production. We make an empirical test of the impact of price volatility on timber production. The results show that the price volatility has a significantly positive effect of timber harvest volume, an increase of one percentage point, timber production increased to9,610cubic meters.