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Item Valuation of Licensing Agreements in Agriculture Biotechnology(North Dakota State University, 2016) Churchill, JasonAs demand for agricultural commodities expands throughout the world, competitors are finding it advantageous to form strategic partnerships. Firms seek to collaborate in an organized effort to advance technology as quickly as possible. This thesis develops a discounted cash flow model embedded with real options and Monte Carlo simulation to value the most common rights, restrictions, and options found in agriculture biotechnology license agreements. Due to the complexity and uncertainty involved in the incubation of new technology, the incorporation of flexibility provided through real options is paramount to the analysis. Implications from changes in critical variables are analyzed as to how they may affect decision making. This thesis establishes an extensive background and analysis of licensing intellectual property in agriculture biotechnology, valuation techniques for intellectual property licenses, as well as tactics for quantifying specific terms. Thus creating a framework for the valuation of agriculture biotechnology licensing agreements.Item A Multivariate Approach to Forecasting Dairy Imports(North Dakota State University, 2014) Laufmann, ReginaThe global economy is becoming more connected with every passing year. Developing countries continue to lift themselves out of poverty and their markets are hungry for the opportunity to trade goods with nations all over the world. This is true in dairy markets, and it is a good time for domestic producers to set their sights on international markets. Domestic companies want to have a tool they can use to determine where the demand is not only strong today but will remain strong in the future. In this paper a model is developed to forecast demand in China, the world’s top dairy importing nation. The accuracy of the model is checked. While forecasts will never be completely accurate the multivariate approach used in this paper shows promise for the helpfulness of such models to firms looking to evaluate foreign markets.Item Real Option Analysis of Primary Rail Contracts in Grain Shipping(North Dakota State University, 2017) Landman, DanielGrain shipping for a country elevator involves many sources of risk and uncertainty. In response to these dynamic challenges faced by shippers, railroad carriers offer various types of forward contracting instruments and shuttle programs. Certain contracting instruments provide managerial flexibility by allowing shippers to sell excess railcars into a secondary market. The purpose of this study is to value this transferability as a European put option. A framework is developed around a material requirement planning schedule and real option analysis to represent the strategic decisions facing a primary shuttle contract owner. Monte Carlo simulation is incorporated with a stochastic binomial option pricing model to value the transfer option. A sensitivity analysis is then conducted to determine the impact of key input variables. This study provides insights about railcar ordering strategy, and the implications of transferable rail contracts for shippers and carriers.Item Determining the Optimal Commodity and Hedge Ratio for Cross-Hedging Jet Fuel(North Dakota State University, 2014) Turner, Peter AlistairAirlines are exposed to risks in swings in the price of jet fuel. While there are many different options that they can use to hedge this risk, airlines often underutilize them. This study establishes the minimum variance hedge ratio for an airline wishing to hedge with futures, while also establishing the best cross-hedging asset. Airlines hedging with futures would create the most effective hedge by using 3-month maturity contracts of heating oil. 3- Month maturity contracts are slightly more effective as hedging tools than the next month, but beyond the 3-Month veil, increased maturity makes heating oil less effective as a cross hedging tool.Item Hedging Default and Price Risks in Commodity Trading(North Dakota State University, 2016) Kimura, NorifumiMany risk factors exist in the commodity markets, especially those related to price and quantity. Recently, the risk of counterparty default has been increasing. The purpose of this study is to develop a portfolio-hedging model to hedge both price and default risks using exchange traded commodity futures and option contracts. Two approaches are taken to determine the optimal hedge ratios (HR) using futures and options: an analytical approach that mathematically derives closed-form mean-variance (E-V) maximizing solutions, and an empirical approach that uses stochastic optimization and Monte Carlo simulation under mean-value-at-risk (E-VaR) framework. Based on the analytical approach, we proved that utility-maximizing solutions exists. The empirical approach suggests that naïve HR (HR of one) leads to a suboptimal result. The minimum-variance, E-V, and minimum VaR objective functions generated the same optimization results. Additionally, a copula is applied instead of a linear correlation, and resulted a higher put option HR.Item Game Theory Approach to the Vertical Relationships for U.S. Containerized Imports(North Dakota State University, 2013) Liu, QingMulti-player interactions and vertical relationships in the U.S. containerized-import shipment market are investigated using game theory approaches. Bi-level programming problems (BLPP) are built to capture the hierarchy structure of the container shipping industry, whereas the ocean carriers (OC) are considered as the market leader. For a case study with five players from several levels of the shipment chain, 16 BLPPs are built to analyze the 32 coalition possibilities. Two routes are compared: The West Coast route (WCR) includes one terminal (P1) and one railroad (R); the East Coast route (ECR) includes a second terminal (P2) and the Panama Canal (PC). The impact of Panama Canal expansion is investigated by comparing scenarios with different assumptions of vessel size. Capacity constraints at port terminals are also analyzed by assuming different capacity levels. The grand coalition of the five players is found to be very unstable because of the unavoidable competition within the coalition; hence, following games are further created, supposing the grand coalition could not form. Model results indicate the OC prefers to form an East Coast Coalition (ECC) with East Coast players if the grand coalition could not form. Sensitivity analyses on some parameter values for the grand coalition and for the ECC bring some interesting findings. With higher cargo values, the WCR becomes more appealing because of its quicker delivery time and lower inventory costs compared with the ECR. The Panama Canal expansion will improve market power and profit shares for the East Coast players if the canal operator could increase its competitive price more than the increase of costs. Generally, a player will gain more market power if its cost could be reduced. A player's upper bound rate is a reflection of its relative market power. But in a complicated market characterized with various cooperation-competition strategies and an ambiguous definition of partners and competitors, the impact of a player's upper bound rate on the market power structure could not be easily explained. For future research, the challenge mainly lies on the large number of BLPPs that need to be constructed and solved in order to study more players.Item Estimating U.S. Residential Demand for Fuelwood in the Presence of Selectivity(North Dakota State University, 2014) Daly, Ryan MichaelResidential energy consumers have options for home heating. With many applications, appliances, and fuel types, fuelwood used for heating faces stiff competition in modern society from other fuels. This study estimates demand for domestic fuelwood. It also examines whether evidence of bias exists from residential homes choosing to use fuelwood. The use of OLS as an estimator will yield biased results if such selectivity exists. Selectivity is addressed with a Heckman (1979) two-step procedure; bias in fuelwood demand estimation using OLS is reduced. Non-wood energy prices and income are major determinants of fuelwood demand. Geographical regions and urbanization confirm results from prior studies.Item The Risks Associated with Barley Production in North Dakota(North Dakota State University, 2016) Nelson, Bernt LouisThe market for barley has shifted from a demand for exports and livestock feed, to a demand for human food and alcohol production. Due to the crop qualities required for malting in the alcohol industry, barley is perceived to be a more financially risky crop to grow in comparison to other crops. Monte Carlo simulation was used to estimate the distributions of net return to labor and management for barley, hard red spring wheat, corn, soybean, and canola in the primary, North Central, and transitional, Central, crop reporting districts of North Dakota. Stochastic efficiency with respect to a function was used to rank the distributions based on a farm manager’s risk preferences. Results indicate that barley is not as risky to grow as farm managers perceive. However, soybeans were the dominant crop. Corn is dominant crop when a decision maker is risk neutral, but quickly diminishes as risk aversion increases.Item Optimization of Soybean Buying Strategies Using Derivatives(North Dakota State University, 2017) Moody, Nathaniel DavidThe portfolio model of hedging framework, based off Markowitz (1952), is used to determine the best mix of futures, basis, and option contracts to hedge a soybean purchase from PNW 28 weeks in to the future. Eighteen options are incorporated including in-the-money, at-the-money, and out-of-the-money call and puts with different expiration dates. Futures and option pricing data is extracted from ProphetX from November of 2013 to December of 2016. Expected utility objectives including mean-variance, CVaR, Mean-CVaR, and Mean-CVaR with copula are maximized using linear programming optimization methods. A two stage model is built to simulate hedging scenarios while measuring various statistics. Under high risk aversion, a standard futures hedge performs the best. Buyers with lower risk aversion should explore option strategies. In-the-money calls, collars, strangles, and short butterfly strategies all perform well.Item Risk Management Strategies for Commodity Processors(North Dakota State University, 2013) Chen, SongjiaoRecent years have witnessed an increase in agricultural commodity price volatility. This thesis analyzes different models to derive optimal hedge strategies for commodity processors, with two components addressed. One is the dependence structure and joint distribution among inputs, outputs, and hedging instruments that impact hedging effectiveness. The second refers to different procurement and sales scenarios a processor may encounter. A domestic flour mill company is used to demonstrate alternative hedging strategies under different processing scenarios. Copula is a relatively new method used to capture flexible dependence structure and joint distribution among assets. The applications of copulas in the agricultural literature are recent. This thesis integrates the concept of copula and widely studied risk measurement Value at Risk (VaR) to derive the optimal risk management strategy. Mean-VaR with copula calculation is shown to be an efficient and confident approach to analyze empirical studies.