Cutting Rules for Final Fellings: A Mean-Variance Portfolio Analysis

The present paper formulates a portfolio model for harvesting problems. The assumption is that each forest stand is an independent asset and consideration is given only to final felling. We proceed to formulate a model for the portfolio value, in which the returns yielded by a forest stand can be seen to comprise three components: timber-price return, physical-growth return and opportunity cost from postponing harvesting. We also discuss the special features of a forest stand as an asset and its effects on the formulation of meanvariance portfolio optimisation. Our observation in the case of boreal coniferous forests is that a good approximation of the forest return can be obtained by ignoring the opportunity cost. A case study using real Finnish forest stands and stock-market data is presented.