Articlehybrid1991

Valuing agricultural firms

18 citations0/0 files storedJournal of Economic Dynamics and Control

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Capital Investment and Risk Analysis Stochastic processes and financial applications Financial Reporting and Valuation Research

Abstract

Uncertainty about prices, output, demand, and managerial decisions is not easily incorporated into a valuation model for real assets. However, techniques originally developed in the option-pricing literature can accommodate these complexities. This paper examines the contingent-claims approach to valuing real assets. A model for the value of an agricultural producer is derived. Optimal shutting and reopening, volatile output and demand, and other realistic features are included. The model differs markedly from conventional discounted-cash-flow models. Empirical tests using prices of rubber and palm-oil estates listed on the Stock Exchange of Singapore offer some support for the model.

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References

1985A Theory of the Term Structure of Interest Rates 1985Evaluating Natural Resource Investments 1989Entry and Exit Decisions under Uncertainty 1987Time to build, option value, and investment decisions 1988Option Valuation of Claims on Real Assets: The Case of Offshore Petroleum Leases 1985Investment and the Valuation of Firms When There is an Option to Shut Down 1978MARKET RISK ADJUSTMENT IN PROJECT VALUATION 1965The Relationship of Direct Price Flexibilities to Direct Price Elasticities

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