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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.