ABSTRACT
An overview of the importance of real options analysis (ROA), its relevance and applications to forest management decision making is provided. The significance of ROA in valuing the managerial flexibility under stochastic situation is highlighted. The application of ROA is divided into two categories – forest harvesting and forest conservation decisions. In the case of forest harvesting decisions, the main features of modeling of timber prices as the geometric Brownian motion (GBM), mean reversion (MR), mean reversion with jumps (MRJ) and mean reversion with varying long-run marginal cost process are discussed, and the main findings of the studies using these processes are analyzed. The key findings of the studies focused on forest conservation decisions are highlighted. Some suggestions for future research on the relevant issues are proposed.
