IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this article

Measuring The Market Risk Of Freight Rates: A Value-At-Risk Approach

  • TIMOTHEOS ANGELIDIS

    ()

    (Department of Economics, University of Peloponnese, Greece)

  • GEORGE SKIADOPOULOS

    ()

    (Department of Banking and Financial Management, University of Piraeus, Greece; Financial Options Research Centre, Warwick Business School, University of Warwick, Greece)

The fluctuation of shipping freight rates (freight rate risk) is an important source of market risk for all participants in the freight markets including hedge funds, commodity and energy producers. We measure the freight rate risk by the Value-at-Risk (VaR) approach. A range of parametric and non-parametric VaR methods is applied to various popular freight markets for dry and wet cargoes. Backtesting is conducted in two stages by means of statistical tests and a subjective loss function that uses the Expected Shortfall, respectively. We find that the simplest non-parametric methods should be used to measure freight rate risk. In addition, freight rate risk is greater in the wet cargoes markets. The margins in the growing freight derivatives markets should be set accordingly.

If 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.

File URL: http://www.worldscinet.com/cgi-bin/details.cgi?type=pdf&id=pii:S0219024908004889
Download Restriction: Access to full text is restricted to subscribers.

File URL: http://www.worldscinet.com/cgi-bin/details.cgi?type=html&id=pii:S0219024908004889
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Theoretical and Applied Finance.

Volume (Year): 11 (2008)
Issue (Month): 05 ()
Pages: 447-469

as
in new window

Handle: RePEc:wsi:ijtafx:v:11:y:2008:i:05:p:447-469
Contact details of provider: Web page: http://www.worldscinet.com/ijtaf/ijtaf.shtml

Order Information: Email:


References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Mayhew, Stewart & Sarin, Atulya & Shastri, Kuldeep, 1995. " The Allocation of Informed Trading across Related Markets: An Analysis of the Impact of Changes in Equity-Option Margin Requirements," Journal of Finance, American Finance Association, vol. 50(5), pages 1635-53, December.
  2. Manolis Kavussanos & Nikos Nomikos, 2003. "Price Discovery, Causality and Forecasting in the Freight Futures Market," Review of Derivatives Research, Springer, vol. 6(3), pages 203-230, October.
  3. Keith Kuester & Stefan Mittnik & Marc S. Paolella, 2006. "Value-at-Risk Prediction: A Comparison of Alternative Strategies," Journal of Financial Econometrics, Society for Financial Econometrics, vol. 4(1), pages 53-89.
  4. Tim Bollerslev, 1986. "Generalized autoregressive conditional heteroskedasticity," EERI Research Paper Series EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
  5. Tim Krehbiel & Lee C. Adkins, 2005. "Price risk in the NYMEX energy complex: An extreme value approach," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 25(4), pages 309-337, 04.
  6. repec:dau:papers:123456789/607 is not listed on IDEAS
  7. Gikas A. Hardouvelis & Dongcheol Kim, 1996. "Price volatility and futures margins," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 16(1), pages 81-111, 02.
  8. Brooks, C. & Clare, A.D. & Dalle Molle, J.W. & Persand, G., 2005. "A comparison of extreme value theory approaches for determining value at risk," Journal of Empirical Finance, Elsevier, vol. 12(2), pages 339-352, March.
  9. Manolis G. Kavussanos & Ilias D. Visvikis, 2006. "Shipping freight derivatives: a survey of recent evidence," Maritime Policy & Management, Taylor & Francis Journals, vol. 33(3), pages 233-255, July.
  10. Brooks, C. & Clare, A. D. & Persand, G., 2000. "A word of caution on calculating market-based minimum capital risk requirements," Journal of Banking & Finance, Elsevier, vol. 24(10), pages 1557-1574, October.
  11. Michael S. Haigh & Matthew T. Holt, 2002. "Hedging foreign currency, freight, and commodity futures portfolios—A note," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 22(12), pages 1205-1221, December.
  12. Diebold, Francis X & Mariano, Roberto S, 1995. "Comparing Predictive Accuracy," Journal of Business & Economic Statistics, American Statistical Association, vol. 13(3), pages 253-63, July.
  13. Paul H. Kupiec, 1995. "Techniques for verifying the accuracy of risk measurement models," Finance and Economics Discussion Series 95-24, Board of Governors of the Federal Reserve System (U.S.).
  14. McNeil, Alexander J. & Frey, Rudiger, 2000. "Estimation of tail-related risk measures for heteroscedastic financial time series: an extreme value approach," Journal of Empirical Finance, Elsevier, vol. 7(3-4), pages 271-300, November.
  15. Paul H. Kupiec, 1997. "Margin requirements, volatility, and market integrity: what have we learned since the crash?," Finance and Economics Discussion Series 1997-22, Board of Governors of the Federal Reserve System (U.S.).
  16. Nelson, Daniel B, 1991. "Conditional Heteroskedasticity in Asset Returns: A New Approach," Econometrica, Econometric Society, vol. 59(2), pages 347-70, March.
  17. GIOT, Pierre & LAURENT, Sébastien, . "Market risk in commodity markets: a VaR approach," CORE Discussion Papers RP 1682, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  18. Gita Persand & Chris Brooks, 2003. "Volatility forecasting for risk management," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 22(1), pages 1-22.
  19. Harvey, David & Leybourne, Stephen & Newbold, Paul, 1997. "Testing the equality of prediction mean squared errors," International Journal of Forecasting, Elsevier, vol. 13(2), pages 281-291, June.
  20. Christoffersen, Peter F, 1998. "Evaluating Interval Forecasts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(4), pages 841-62, November.
  21. Hsieh, David A & Miller, Merton H, 1990. " Margin Regulation and Stock Market Volatility," Journal of Finance, American Finance Association, vol. 45(1), pages 3-29, March.
  22. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
  23. Sadorsky, Perry, 2006. "Modeling and forecasting petroleum futures volatility," Energy Economics, Elsevier, vol. 28(4), pages 467-488, July.
  24. Raymond P. H. Fishe & Lawrence G. Goldberg & Thomas F. Gosnell & Sujata Sinha, 1990. "Margin requirements in futures markets: Their relationship to price volatility," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 10(5), pages 541-554, October.
  25. Kavussanos, Manolis G. & Visvikis, Ilias D., 2004. "Market interactions in returns and volatilities between spot and forward shipping freight markets," Journal of Banking & Finance, Elsevier, vol. 28(8), pages 2015-2049, August.
  26. Haigh, Michael S. & Holt, Matthew T., 2002. "Hedging Foreign Currency, Freight And Commodity Futures Portfolios: A Note," Working Papers 28573, University of Maryland, Department of Agricultural and Resource Economics.
  27. Yamai, Yasuhiro & Yoshiba, Toshinao, 2005. "Value-at-risk versus expected shortfall: A practical perspective," Journal of Banking & Finance, Elsevier, vol. 29(4), pages 997-1015, April.
  28. Lehar, Alfred & Scheicher, Martin & Schittenkopf, Christian, 2002. "GARCH vs. stochastic volatility: Option pricing and risk management," Journal of Banking & Finance, Elsevier, vol. 26(2-3), pages 323-345, March.
  29. David Cabedo, J. & Moya, Ismael, 2003. "Estimating oil price 'Value at Risk' using the historical simulation approach," Energy Economics, Elsevier, vol. 25(3), pages 239-253, May.
  30. Manolis G. Kavussanos & Nikos K. Nomikos, 1999. "The forward pricing function of the shipping freight futures market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 19(3), pages 353-376, 05.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:wsi:ijtafx:v:11:y:2008:i:05:p:447-469. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tai Tone Lim)

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 references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.