Quantifying Time-varying Term-risk Premia in Shipping Markets A Possible Approach
Recent empirical work, as part of its attempt to establish the expectations hypothesis and explain the term structure of shipping freight rates, has identified the presence of time-varying term-risk premia in shipping markets. Consequently, to proceed further in any such research, a way must be found to model this variable independently from the expectations hypothesis. This paper considers one possible approach that involves deriving a relationship between market risk and market discount rates. This relationship is then employed to illustrate how term-risk premia in shipping markets might be quantified. © 2011 LSE and the University of Bath
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