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Multivariate modeling and analysis of regional ocean freight rates

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  • Adland, Roar
  • Benth, Fred Espen
  • Koekebakker, Steen

Abstract

In this paper, we propose a new multivariate model for the dynamics of regional ocean freight rates. We show that a cointegrated system of regional spot freight rates can be decomposed into a common non-stationary market factor and stationary regional deviations. The resulting integrated CAR process is new to the literature. By interpreting the common market factor as the global arithmetic average of the regional rates, both the market factor and the regional deviations are observable which simplifies the calibration of the model. Moreover, forward contracts on the market factor can be traded in the Forward Freight Agreement (FFA) market. We calibrate the model to historical spot rate processes and illustrate the term structures of volatility and correlation between the regional prices and the market factor. Our model is an important contribution towards improved modelling and hedging of regional price risk when derivative market liquidity is concentrated in a single global benchmark.

Suggested Citation

  • Adland, Roar & Benth, Fred Espen & Koekebakker, Steen, 2018. "Multivariate modeling and analysis of regional ocean freight rates," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 113(C), pages 194-221.
    • Handle: RePEc:eee:transe:v:113:y:2018:i:c:p:194-221
    DOI: 10.1016/j.tre.2017.10.014
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    Cited by:

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    2. Yuting Gong & Xueqin Wang & Mo Zhu & Ying‐En Ge & Wenming Shi, 2023. "Maximum utility portfolio construction in the forward freight agreement markets: Evidence from a multivariate skewed t copula," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 43(1), pages 69-89, January.
    3. Vishal Kashav & Chandra Prakash Garg & Rupesh Kumar, 2023. "Ranking the strategies to overcome the barriers of the maritime supply chain (MSC) of containerized freight under fuzzy environment," Annals of Operations Research, Springer, vol. 324(1), pages 1223-1268, May.
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    5. Theodore Syriopoulos & Michael Tsatsaronis & Ioannis Karamanos, 2021. "Support Vector Machine Algorithms: An Application to Ship Price Forecasting," Computational Economics, Springer;Society for Computational Economics, vol. 57(1), pages 55-87, January.
    6. Adland, Roar & Prochazka, Vit, 2021. "The value of timecharter optionality in the drybulk market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 145(C).
    7. Zhang, X. & Chen, M.Y. & Wang, M.G. & Ge, Y.E. & Stanley, H.E., 2019. "A novel hybrid approach to Baltic Dry Index forecasting based on a combined dynamic fluctuation network and artificial intelligence method," Applied Mathematics and Computation, Elsevier, vol. 361(C), pages 499-516.
    8. Zhou, Xiaoyang & Sun, Jialong & Fu, Haoran & Ge, Fuyi & Wu, Junfeng & Lev, Benjamin, 2024. "Resilience analysis of the integrated China-Europe freight transportation network under heterogeneous demands," Transportation Research Part A: Policy and Practice, Elsevier, vol. 186(C).
    9. Siddiqui, Atiq W. & Basu, Rounaq, 2020. "An empirical analysis of relationships between cyclical components of oil price and tanker freight rates," Energy, Elsevier, vol. 200(C).

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