Option value and optimal rotation policies for aquaculture exploitations

Arantza Murillas Maza

No 304, Working Papers from Universidade de Vigo, Departamento de Economía Aplicada

Abstract: Evaluating an aquaculture exploitation is extremely difficult because of the high level of uncertainty regarding both the farmed resource and output prices. That is why option pricing methodology may be preferable to traditional discounted methods, that cannot properly capture the management flexibility of the exploitation. This paper presents several models, based on Real Option theory, sufficient for determining not only the value of an aquaculture exploitation under management flexibility but also, the optimal rotation policy. Moreover, the paper turns to calculate the risk of an aquaculture exploitation by using the Value at Risk (VaR) methodology. To illustrate the nature of the solutions, a case based on the ”mussel” sector in Galicia (Spain) is considered. Given the obtained value of the risk is higher than the option value itself, the mussel sector appears to be a risky sector.

Keywords: Real Options; Value at Risk (VaR); Aquaculture Exploitations. (search for similar items in EconPapers)
JEL-codes: G13 Q22 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2003-03
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Persistent link: https://EconPapers.repec.org/RePEc:vig:wpaper:0304

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