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Modeling and Computation of Optimal Decision for Farmers Leasing Lands

In this paper, we use the real option theory to examine the critical factors affecting the decision of farmers to quit agriculture production and lease the land, model the optimal leasing decision as a perpetual American put option, and derive a partial differential complementary problem for the opt... Full description

Journal Title: International Journal of Computer Mathematics 10 August 2015, p.1-20
Main Author: Chang, Shuhua
Other Authors: Tang, Wenguang
Format: Electronic Article Electronic Article
Language: English
Subjects:
Publisher: Taylor & Francis
ID: ISSN: 0020-7160 ; E-ISSN: 1029-0265 ; DOI: 10.1080/00207160.2015.1080358
Link: http://dx.doi.org/10.1080/00207160.2015.1080358
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recordid: tayfranc10.1080/00207160.2015.1080358
title: Modeling and Computation of Optimal Decision for Farmers Leasing Lands
format: Article
creator:
  • Chang, Shuhua
  • Tang, Wenguang
subjects:
  • Real Option
  • Partial Differential Complementarity Problem
  • Power Penalty Approach
  • Finite Difference Method
  • Convenience Yield
  • 35q62
  • 65k15
  • 91g80
ispartof: International Journal of Computer Mathematics, 10 August 2015, p.1-20
description: In this paper, we use the real option theory to examine the critical factors affecting the decision of farmers to quit agriculture production and lease the land, model the optimal leasing decision as a perpetual American put option, and derive a partial differential complementary problem for the option value, which is solved by a power penalty approach. In addition, a finite difference method is employed to discretize the resulting nonlinear partial differential equation, and it is studied that when to lease the land is optimal for farmers. We also empirically compute and analyze the optimal exercise boundary to provide the assistance for the decision making and highlight the key details of the numerical implementation. Article just-accepted.
language: eng
source:
identifier: ISSN: 0020-7160 ; E-ISSN: 1029-0265 ; DOI: 10.1080/00207160.2015.1080358
fulltext: fulltext
issn:
  • 0020-7160
  • 00207160
  • 1029-0265
  • 10290265
url: Link


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descriptionIn this paper, we use the real option theory to examine the critical factors affecting the decision of farmers to quit agriculture production and lease the land, model the optimal leasing decision as a perpetual American put option, and derive a partial differential complementary problem for the option value, which is solved by a power penalty approach. In addition, a finite difference method is employed to discretize the resulting nonlinear partial differential equation, and it is studied that when to lease the land is optimal for farmers. We also empirically compute and analyze the optimal exercise boundary to provide the assistance for the decision making and highlight the key details of the numerical implementation. Article just-accepted.
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abstractIn this paper, we use the real option theory to examine the critical factors affecting the decision of farmers to quit agriculture production and lease the land, model the optimal leasing decision as a perpetual American put option, and derive a partial differential complementary problem for the option value, which is solved by a power penalty approach. In addition, a finite difference method is employed to discretize the resulting nonlinear partial differential equation, and it is studied that when to lease the land is optimal for farmers. We also empirically compute and analyze the optimal exercise boundary to provide the assistance for the decision making and highlight the key details of the numerical implementation.
pubTaylor & Francis
doi10.1080/00207160.2015.1080358
issue12
volume92
date2015-12-02