IDEAS home Printed from https://ideas.repec.org/a/eee/transe/v51y2013icp109-116.html

Optimal tanker chartering decisions with spot freight rate dynamics considerations

Author

Listed:
  • Wang, He
  • Huang, Simin
  • Liu, Zhen
  • Zheng, Li

Abstract

We study a tanker chartering decision problem faced by refinery companies. The decision process is formulated as an optimal stopping problem with geometric Brownian motion for the spot freight rate dynamics and a Poisson type arrival process for the tankers. We show the problem can be solved efficiently by partial differential equations. The study, for the first time, provides innovative techniques for modeling freight rate uncertainty facing refinery companies. An application of the model to a refinery company in China shows the benefit of our method compared to the company’s current tanker-chartering strategy.

Suggested Citation

  • Wang, He & Huang, Simin & Liu, Zhen & Zheng, Li, 2013. "Optimal tanker chartering decisions with spot freight rate dynamics considerations," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 51(C), pages 109-116.
    • Handle: RePEc:eee:transe:v:51:y:2013:i:c:p:109-116
    DOI: 10.1016/j.tre.2012.12.006
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S1366554512001147
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.tre.2012.12.006?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. Boyle, Phelim & Broadie, Mark & Glasserman, Paul, 1997. "Monte Carlo methods for security pricing," Journal of Economic Dynamics and Control, Elsevier, vol. 21(8-9), pages 1267-1321, June.
    2. André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), 2011. "A Handbook of Transport Economics," Books, Edward Elgar Publishing, number 12679, June.
    3. Avinash K. Dixit & Robert S. Pindyck, 1994. "Investment under Uncertainty," Economics Books, Princeton University Press, edition 1, number 5474, December.
    4. Al Wood, 2011. "Tanker Ownership in non-OECD countries and the Rise of Government-Owned Fleets," Working Papers 2011-07, The George Washington University, Institute for International Economic Policy.
    5. Alberto Behar & Anthony J. Venables, 2011. "Transport Costs and International Trade," Chapters, in: André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), A Handbook of Transport Economics, chapter 5, Edward Elgar Publishing.
    6. Dai, Min & Kwok, Yue Kuen & You, Hong, 2007. "Intensity-based framework and penalty formulation of optimal stopping problems," Journal of Economic Dynamics and Control, Elsevier, vol. 31(12), pages 3860-3880, December.
    7. André de Palma & Robin Lindsey & Emile Quinet & Robert Vickerman, 2011. "Handbook Of Transport Economics," PSE-Ecole d'économie de Paris (Postprint) halshs-00754912, HAL.
    8. Adland, Roar & Cullinane, Kevin, 2006. "The non-linear dynamics of spot freight rates in tanker markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 42(3), pages 211-224, May.
    9. Koekebakker, Steen & Adland, Roar & Sødal, Sigbjørn, 2007. "Pricing freight rate options," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 43(5), pages 535-548, September.
    10. S. D. Jacka, 1991. "Optimal Stopping and the American Put," Mathematical Finance, Wiley Blackwell, vol. 1(2), pages 1-14, April.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Timothy Besley & Thiemo Fetzer & Hannes Mueller, 2015. "The Welfare Cost Of Lawlessness: Evidence From Somali Piracy," Journal of the European Economic Association, European Economic Association, vol. 13(2), pages 203-239, April.
    2. Wang, Chao & Kim, Yul-Seong & Kim, Chi Yeol, 2021. "Causality between logistics infrastructure and economic development in China," Transport Policy, Elsevier, vol. 100(C), pages 49-58.
    3. Patricia Sourdin & Richard Pomfret, 2012. "Trade Facilitation," Books, Edward Elgar Publishing, number 14596, June.
    4. Kashiha, Mona & Thill, Jean-Claude & Depken, Craig A., 2016. "Shipping route choice across geographies: Coastal vs. landlocked countries," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 91(C), pages 1-14.
    5. Gilles Duranton & Peter M. Morrow & Matthew A. Turner, 2014. "Roads and Trade: Evidence from the US," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 81(2), pages 681-724.
    6. Pedro Albarran & Raquel Carrasco & Adelheid Holl, 2013. "Domestic transport infrastructure and firms’ export market participation," Small Business Economics, Springer, vol. 40(4), pages 879-898, May.
    7. Suresh M. Sundaresan, 2000. "Continuous‐Time Methods in Finance: A Review and an Assessment," Journal of Finance, American Finance Association, vol. 55(4), pages 1569-1622, August.
    8. Alberto Behar & Philip Manners & Benjamin D. Nelson, 2013. "Exports and International Logistics," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 75(6), pages 855-886, December.
    9. Del Rosal Fernández, Ignacio, 2013. "Las condiciones de entrega en el comercio exterior español /Terms of Delivery in the Spanish International Trade," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 31, pages 249(24)-249, Enero.
    10. Mundaca, Gabriela & Strand, Jon & Young, Ian R., 2021. "Carbon pricing of international transport fuels: Impacts on carbon emissions and trade activity," Journal of Environmental Economics and Management, Elsevier, vol. 110(C).
    11. Lindsey, Robin & de Palma, André, 2014. "Cost recovery from congestion tolls with long-run uncertainty," Economics of Transportation, Elsevier, vol. 3(2), pages 119-132.
    12. Felbermayr, Gabriel J. & Tarasov, Alexander, 2022. "Trade and the spatial distribution of transport infrastructure," Journal of Urban Economics, Elsevier, vol. 130(C).
    13. Tim Besley & Thiemo Fetzer & Hannes Mueller, 2012. "One Kind of Lawlessness: Estimating the Welfare Cost of Somali Piracy," UFAE and IAE Working Papers 898.12, Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC).
    14. Rau, Philipp & Spinler, Stefan, 2016. "Investment into container shipping capacity: A real options approach in oligopolistic competition," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 93(C), pages 130-147.
    15. Simon P. Anderson & Régis Renault, 2011. "Price Discrimination," Chapters, in: André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), A Handbook of Transport Economics, chapter 22, Edward Elgar Publishing.
    16. de Angelis, Tiziano & Ferrari, Giorgio, 2014. "A Stochastic Reversible Investment Problem on a Finite-Time Horizon: Free Boundary Analysis," Center for Mathematical Economics Working Papers 477, Center for Mathematical Economics, Bielefeld University.
    17. Jota Ishikawa & Nori Tarui, 2015. "Backfiring with backhaul problems: Trade and Industrial Policies with Endogenous Transport Costs," Working Papers 201514, University of Hawaii at Manoa, Department of Economics.
    18. Thisse, Jacques-François & Proost, Stef, 2015. "Skilled Cities, Regional Disparities, and Efficient Transport: The state of the art and a research agenda," CEPR Discussion Papers 10790, C.E.P.R. Discussion Papers.
    19. Henrik Andersson & James Hammitt & Gunnar Lindberg & Kristian Sundström, 2013. "Erratum to: Willingness to Pay and Sensitivity to Time Framing: A Theoretical Analysis and an Application on Car Safety," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 56(3), pages 457-457, November.
    20. Kenneth Small, 2015. "The Bottleneck Model: An Assessment and Interpretation," Working Papers 141506, University of California-Irvine, Department of Economics.

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:transe:v:51:y:2013:i:c:p:109-116. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/wps/find/journaldescription.cws_home/600244/description#description .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.