Abstract
SUMMARY This paper presents trends and development of real options analysis (ROA) in the field of forestry investment decision making. A literature review was conducted similar to Newman's (2002), which presented the Faustmann framework of optimal forest rotation literature in forestry investment decisions. Eighteen forestry and non-forestry journals, along with significant books on ROA, are reviewed. Although real options applications in the field of forestry are relatively new, as compared to Faustmann's discounted cash flow technique, numerous journals contain articles on ROA in forest investment decisions. The application of real options in forestry investment decisions developed during the late 1980s from the simple topic of nature preservation employing a quasi-option value. This analysis method has recently been applied to much larger problems of timber cutting contracts employing Monte Carlo simulation approaches. In addition, geometric Brownian motion and mean reversion, two of the most prevalent...
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