Market switching in shipping -- A real option model applied to the valuation of combination carriers
AbstractThis paper derives a real options model of flexibility and applies it to shipping, valuing the option to switch between the dry bulk market and wet bulk market for a combination carrier, a ship type that is capable of operating in both markets but that has fallen out of favor due to high price tags. The model is a mean-reverting (Ornstein-Uhlenbeck) version of a standard entry-exit model with stochastic prices. A closed form solution for the value of flexibility is derived, expressed in terms of Kummer functions. The estimated value of flexibility is related to historical price differentials between combination carriers and oil tankers of comparable size. Based on numerical experiments it is concluded that new combination carriers may enter the market in the near future.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Elsevier in its journal Review of Financial Economics.
Volume (Year): 17 (2008)
Issue (Month): 3 (August)
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/620170
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Abadie, Luis M. & Chamorro, José M., 2009.
"Income risk of EU coal-fired power plants after Kyoto,"
Elsevier, vol. 37(12), pages 5304-5316, December.
- Abadie, Luis M. & Chamorro Gómez, José Manuel, 2008. "Income risk of EU coal-fired power plants after Kyoto," IKERLANAK 2008-33, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.
- Axarloglou, Kostas & Visvikis, Ilias & Zarkos, Stefanos, 2012. "The Time Dimension And Value Of Flexibility In Resource Allocation: The Case Of The Maritime Industry," DUTH Research Papers in Economics 2-2012, Democritus University of Thrace, Department of Economics.
- Hagspiel, V., 2011. "Flexibility in technology choice: A real options approach," Open Access publications from Tilburg University urn:nbn:nl:ui:12-5258278, Tilburg University.
If references are entirely missing, you can add them using this form.