On the Market Consistent Valuation of Fish Farms: Using the Real Option Approach and Salmon Futures

27 Pages Posted: 10 Mar 2015 Last revised: 17 Apr 2015

See all articles by Christian-Oliver Ewald

Christian-Oliver Ewald

University of Glasgow; Høgskole i Innlandet

Ruolan Ouyang

University of Glasgow - Adam Smith Business School

Tak-Kuen Siu

Macquarie University, Macquarie Business School

Multiple version iconThere are 2 versions of this paper

Date Written: April 16, 2015

Abstract

We consider the optimal harvesting problem for a fish farmer in a model which accounts for stochastic prices featuring a Schwartz 97 two factor price dynamics. Unlike any other literature in this context, we take account of the existence of a newly established market in salmon futures, which determines risk premia and other relevant variables, that influence the fish farmer in his decision. We consider the cases of single and infinite rotations. The value function of the harvesting problem determined in our arbitrage free setup constitutes the fair value of lease and ownership of the fish farm when correctly accounting for price risk. The data set used for this analysis contains a large set of futures contracts with different maturities traded at the Fish Pool market between 12/06/2006 and 22/03/2012.

Keywords: Futures, Commodities, Aquaculture, Fisheries Economics, Renewable Resources, Risk Management

JEL Classification: Q22, Q14, G12

Suggested Citation

Ewald, Christian-Oliver and Ouyang, Ruolan and Siu, Tak-Kuen, On the Market Consistent Valuation of Fish Farms: Using the Real Option Approach and Salmon Futures (April 16, 2015). Available at SSRN: https://ssrn.com/abstract=2575316 or http://dx.doi.org/10.2139/ssrn.2575316

Christian-Oliver Ewald (Contact Author)

University of Glasgow ( email )

Adam Smith Building
Glasgow, Scotland G12 8RT
United Kingdom

Høgskole i Innlandet ( email )

Lillehammer, 2624
Norway

Ruolan Ouyang

University of Glasgow - Adam Smith Business School ( email )

Glasgow, Scotland
United Kingdom

Tak-Kuen Siu

Macquarie University, Macquarie Business School

New South Wales 2109
Australia

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