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The Recurring Option Contract

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Abstract:

Long-term timber management contracts can be an attractive option to both the nonindustrial private landowner and the forest industry firm. However, many such contracts incorporate inequities or operational problems which may lead to eventual dissatisfaction by one or both parties. The recurring option contract presented is both equitable and operationally sound. Using a modified version of the Black-Scholes Option Pricing Model, an option premium is calculated for each year of the contract in which timber is sold. Through this premium, the firm retains control over the stumpage and the landowner is compensated for relinquishing the right to market his timber independently. The considerable flexibility of the contract permits adaptation to a variety of management objectives.

Document Type: Journal Article

Affiliations: Instructor, School of Forestry, Fisheries, and Wildlife, University of Missouri, Columbia

Publication date: November 1, 1982

More about this publication?
  • Each regional journal of applied forestry focuses on research, practice, and techniques targeted to foresters and allied professionals in specific regions of the United States and Canada. The Southern Journal of Applied Forestry covers an area from Virginia and Kentucky south to as far west as Oklahoma and east Texas.
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