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Understanding the dynamics of market prices for Pinus wood is a prerequisite for strategic decisions concerning forest investment plans since, in terms of the market, the exogenous risk to a project depends on timber assortments. The stochastic process that represents the best way of pricing the underlying asset therefore needs to be known. This study set out to compare Fractional Brownian Motion and Geometric Brownian Motion, through econometric tests, to understand the stochastic model that best represents the price behaviour of Pinus wood from planted forests in the state of Santa Catarina, Brazil, for the pricing of the underlying asset and valuation of the real options intrinsic to forest investment projects. The time series of prices, for the period from June 2017 to July 2019, relate to three assortments of Pinus wood used for multiple products. The recommended econometric tests to analyse the time series were for normality of the data, trend, autocorrelation, stationarity and fractional differential estimation. The time series were then modelled by means of stochastic processes in line with the econometric tests. The time series showed normal behaviour and indicated the presence of a positive trend and non-stationarity in the data. In addition, a true long memory was found in all series. Fractional Brownian Motion proved to be the most suitable stochastic process for modelling the prices of three forest timber assortments, given the non-stationary characteristics and true long memory of the time series for Pinus wood prices.

Background: The commonly used methods for the financial evaluation of plantation forest investment projects do not incorporate uncertainties and ignore the value related to flexibility. The real options analysis makes it possible to capture these values in investment projects, increasing their value and return. Despite this, studies involving real options in forest investment projects are scarce, specifically those related to Pinus spp. Therefore, this study aimed to: (a) analyze whether the real options analysis adds value to investment projects of Pinus elliottii Engelm. plantations; and (b) make the real options analysis more accessible to forest managers and potentially increase its use in the investment projects of Pinus spp. plantations. Methods: We evaluated two investment projects in P. elliottii plantations in southern Brazil, which differed in the way of obtaining the land for planting: with lease or purchase of land on a planning horizon of 21 years. In the real options analysis, we used deferral, expansion, and abandonment. Results: Individually, the deferral, expansion, and abandonment options add value to investment projects in Pinus elliottii plantations. The option to expand the forested area is one that adds the most value to the investment project with land lease. In the investment project with land purchase, it is abandonment. Conclusions: Investment projects in Pinus elliotti plantations that contemplate the land purchase analyzed through the real options analysis present higher financial returns than those that consider land lease, inverting the result provided by the traditional analysis.

Aim of study: We checked if an infrastructure investment project for a nursery to produce Eucalyptus forest seedlings using the real options approach was economically viable, in order to verify the influence of the deferral, expansion and abandonment options on the investment project value, as well as their concatenation. Area of study: Our study was based on technical-economic coefficients of a nursery infrastructure to be installed in the São Paulo’s state Midwest region, Brazil. Material and methods: The investment was assessed by addressing the uncertainties inherent in the investment project. We used the dynamic model for real option approach and, to determine the volatility of the project, we applied the Monte Carlo simulation method. As real options for the project, we employed deferral, expansion, and abandonment. Main results: Using the traditional valuation methodology, we obtained a negative static net present value of USD 50,957. When incorporating the real options of the abandonment, deferral and expansion in the form of managerial flexibility to forest managers, we obtained the expanded net present value of USD 216,498, that is, 524.8% of valuation. The traditional method of investment evaluation undervalues the project in infrastructures to produce Eucalyptus forest seedlings nursery, and the increase in managerial flexibility, through the real options for deferral, expansion and abandonment, promotes value to forest managers and enables the feasibility of the project. Research highlights: Infrastructure investment project for a nursery to produce Eucalyptus forest seedlings is not economically viable through the traditional economic evaluation techniques. However, by incorporating managerial flexibilities, through real options, the investment project was valued and it became economically viable.

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