Hedging with trees: Tail-hedge discounting of long-term forestry returns

Lars Hultkrantz and Panagiotis Mantalos

Journal of Forest Economics, 2018, vol. 30, issue C, 52-57

Abstract: Tail-hedge discounting is based on decomposition of returns from long-term investments in a fraction (gamma) that is correlated with consumption and another that is not. The first part is discounted at a discount rate that includes a risk premium, the other with the risk-free rate. We estimate gamma for forestry on Swedish data for stumpage prices and GDP per capita 1909–2012. We demonstrate that the result considerably changes the expected present value of medium-term and long-term forest investments.

Keywords: Discounting; Far‐distant future; Declining discount rates; Forestry; Forest economics; Cost‐benefit analysis (search for similar items in EconPapers)
JEL-codes: D61 D63 D81 D92 Q23 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Hedging with Trees: Tail-Hedge Discounting of Long-Term Forestry Returns (2016)
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DOI: 10.1016/j.jfe.2018.02.001

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