Valuing Switching Options in International Grain Marketing Report as inadecuate

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An important strategy of commodity trading firms is geographical diversificationand vertical integration, often justified with the need for multiple origins. This strategy can beinterpreted as a ‘switching option’. Strategic options have become increasingly apparent andimportant, but, tend to be undervalued using traditional valuation techniques. This paperdevelops a stochastic real options model to value networks of export elevators. It is applied tosoybean trading for shipments from ports in the United States, Brazil and Ukraine. The paperestimates the option value of being able to switch origins in export trades. This value isdetermined by the distributions of margins and their correlations in a switching option algorithm.The results are roughly comparable to observed recent trade values of representative assets.

Keywords: Switching options ; vertical integration ; export elevators ; asset valuation

Subject(s): Agricultural and Food Policy

International Relations/Trade

Issue Date: 2015-03

Publication Type: Report

PURL Identifier:

Total Pages: 24

Series Statement: Agribusiness & Applied Economics Staff Paper


Record appears in: North Dakota State University > Department of Agribusiness and Applied Economics > Agribusiness & Applied Economics Report

Author: Johansen, Stephan ; Wilson, William ; Dahl, Bruce L.


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