A Stochastic Model and a Portfolio Approach to the Optimal Forest Management

Abstract

Considering the valuation of forest stands based on uncertain revenue from wood sales, concession policy (such as carbon subsidies), and associated costs, the paper focuses on building a stochastic control model to study the forest asset dynamic management. The key contributions are to establish a stochastic control model and to find the optimal dynamic strategy about harvesting quantity in the continual and multiple periods in conditions of stochastic commodity price and timber growth by using portfolio approach. Finally, an analytical optimal strategy is obtained to analyze the quantification relations through which some important conclusions about the optimal forest management can be drawn.