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Arbitrage-Free Valuation of a Federal Timber Lease

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The objective of this paper is to describe a quantitative framework for offering timber harvest bids on federal lands which includes special considerations of the volatility of timber indices and the harvesting costs involved in harvesting timber. The advantage of such an approach is that it provides a precise framework in which various underlying considerations, such as volatility and cost, may be systematically defined, measured, and evaluated. The valuations derived in this paper provide a market standard against which additional value that encompasses social or environmental welfare may be evaluated. We discuss a specific USDA Forest Service timber sale as a case study to illustrate this approach. For. Sci. 45(4):473-483.
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Keywords: Minimum bid valuation; arbitrage-free; finance; option value

Document Type: Journal Article

Affiliations: Department of Mathematics, Oregon State University, Corvallis, OR 97331

Publication date: 1999-11-01

More about this publication?
  • Forest Science is a peer-reviewed journal publishing fundamental and applied research that explores all aspects of natural and social sciences as they apply to the function and management of the forested ecosystems of the world. Topics include silviculture, forest management, biometrics, economics, entomology & pathology, fire & fuels management, forest ecology, genetics & tree improvement, geospatial technologies, harvesting & utilization, landscape ecology, operations research, forest policy, physiology, recreation, social sciences, soils & hydrology, and wildlife management.
    Forest Science is published bimonthly in February, April, June, August, October, and December.

    2016 Impact Factor: 1.782 (Rank 17/64 in forestry)

    Average time from submission to first decision: 62.5 days*
    June 1, 2016 to Feb. 28, 2017

    Also published by SAF:
    Journal of Forestry
    Other SAF Publications
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