Hedging with Trees: Tail-Hedge Discounting of Long-Term Forestry Returns

Lars Hultkrantz and Panagiotis Mantalos

No 2016:2, Working Papers from Örebro University, School of Business

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 in three forestry cases that the result considerably changes the expected present value of long-term forestry 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)
Pages: 23 pages
Date: 2016-08-17
New Economics Papers: this item is included in nep-env
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Journal Article: Hedging with trees: Tail-hedge discounting of long-term forestry returns (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:oruesi:2016_002

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