Efficiency evaluation of agricultural land use by application of real options method

Abstract

Purpose: The article reviews most common approaches of land evaluation and method of real options. Discussion: Agricultural sector is widely influenced by frequently changing environmental and economic conditions that reflect the fact of highly stochastic nature of land price. Hence, in order to estimate agriculturally used areas the method of real options is suggested for application since it considers significant price variation and high uncertainty of other parameters involved in analysis according to stochastic characteristics of their dynamics. Appraisal of natural resources and rights to use them is Black-Scholes model-driven developed for European call money rate estimation. Results: Authors present the advantages of real options method over traditional ones and possibility for practical application of the results it delivers.