The Optimal Decision About Switching Agriculture Land To Carbon Sink Forestry Based On Real Option Theory

The impact of climate change on global ecology and the survival of human beings has become a nationwide issue,not only in politics but also in economics.Carbon sinks forestry,an important tool to mitigate global warming,plays a central and active role in protecting globally ecological and climatic safety.The study of relevant investment and decision-making process of carbon sinks forestry projects is therefore now a high priority.Combined with real option theory,this dissertation has solved the problem about switching agricultural land to carbon sinks forestry under uncertainty and has arrived at the investment decision,via a regime switching optimum model.The main contents and conclusions are as follows:First,the regime switching problems based on stochastic process and real option theories is studied.Regarding the switching of two modes as the investment problem of real option and utilizing dynamic programming principle,this paper comes up with a Bellman function with respect to the value of real option.Turning it into a partial differential equation complementary problem,in which the complementary function has been converted into a pure partial differential equation via the penalty method of optimal exercise boundary,this paper uses finite volume method to discretize the differential equation and finds out the optimal exercise boundary of regime switching.Therefore,the foundation on which the rational decision of investors has been provided.Second,in the light of the uncertainties of the profit flow of farming,a optimal decision model based on the transition of real-option agriculture to carbon sinks forestry is established.Besides,the solution and evidence about the convergence under numerical computation of this model has been given.Third,the dynamic change of carbon volume of pine-oak woodlands in Liaoning,China is simulated by using the C02FIX model,under the conditions of specific geographic environment and weather.Based on that,the general changing pattern of C02 in biomass,soils and woods in the long run is also shown,which dynamically estimates the potentials of carbon sequestration of carbon sinks forestry,providing well-grounded data for sequential positive analysis.Fourth,using the maximum likelihood estimation,the parameters of the profit flow of farming which follow the mean reverting process is estimated,based on which real option value and the optimal exercise boundary of the transition from agricultural land to carbon sinks forestry is given.Also,the sensitivity analysis is also shown in this article,to provide tenacious grounds for investors identifying the best time and for governments pooling and controlling investment in carbon sinks forestry.In conclusion,under fully consideration of uncertainties in the switching of agricultural land to carbon sinks forestry,and based on real option theory,this dissertation has established a optimal decision model for regime switching,to provide a brand new method which solves the problems in the carbon sinks forestry investment.Solving the model by penalty method and finite difference method,and giving a positive analysis by stimulating the carbon volume via C02FIX model,this paper provides sound theoretical grounds for investors rationally choosing the best investment time and strategy and for government pooling and adjusting policies and subsidies.