Valuing Switching Options in International Grain Marketing

Stephan Johansen, William Wilson and Bruce L. Dahl

No 201309, Agribusiness & Applied Economics Report from North Dakota State University, Department of Agribusiness and Applied Economics

Abstract: An important strategy of commodity trading firms is geographical diversification and vertical integration, often justified with the need for multiple origins. This strategy can be interpreted as a ‘switching option’. Strategic options have become increasingly apparent and important, but, tend to be undervalued using traditional valuation techniques. This paper develops a stochastic real options model to value networks of export elevators. It is applied to soybean trading for shipments from ports in the United States, Brazil and Ukraine. The paper estimates the option value of being able to switch origins in export trades. This value is determined 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: Agricultural and Food Policy; International Relations/Trade (search for similar items in EconPapers)
Pages: 24
Date: 2015-03
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://ageconsearch.umn.edu/record/201309/files/s ... ised%20april%209.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:nddaae:201309

DOI: 10.22004/ag.econ.201309

Access Statistics for this paper

More papers in Agribusiness & Applied Economics Report from North Dakota State University, Department of Agribusiness and Applied Economics Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().