Date of Award
2024
Publisher
North Dakota State University
Document Type
Thesis
Degree Awarded
Master of Science (MS)
Department
Agribusiness and Applied Economics
College
Business
Faculty Advisor
Wilson, William
Description
Changing dynamics in the international grain trading industry have led to a rise in two new contracting practices colloquially termed washouts and switching options and formally defined as contract washouts and embedded origin switching options. When spatial arbitrage opportunities exist, grain buying firms switch from one origin to another. This thesis documents the increased frequency with which these contract practices have been used and examines the factors that incentivize firms to use them. Using data from 2018 to 2023, two models are developed with a binomial lattice that value these contracting terms. The results indicate that these practices have significant value, which is largely driven by price volatility and the correlation between prices at different international origins. This explains the observed increase in contract washouts and origin switching options in recent years, as grain prices have been characterized by higher price volatility.
Recommended Citation
Hauck, Caleb, "International grain origin switching: contract washouts and embedded switching options" (2024). Agribusiness and Applied Economics. 111.
https://digitalcommons.ndsu.edu/agribusiness-applied-econ/111
Rights
NDSU policy 190.6.2
Rights Link
https://www.ndsu.edu/fileadmin/policy/190.pdf
Handle Identifier
https://hdl.handle.net/10365/33919