IDEAS home Printed from https://ideas.repec.org/p/rdg/icmadp/icma-dp2010-04.html
   My bibliography  Save this paper

Pricing and Hedging in the Freight Futures Market

Author

Listed:
  • Marcel Prokopczuk

    (ICMA Centre, University of Reading)

Abstract

In this article, we consider the pricing and hedging of single route dry bulk freight futures contracts traded on the International Maritime Exchange. Thus far, this relatively young market has received almost no academic attention. In contrast to many other commodity markets, freight services are non-storable, making a simple cost-of-carry valuation impossible. We empirically compare the pricing and hedging accuracy of a variety of continuous-time futures pricing models. Our results show that the inclusion of a second stochastic factor significantly improves the pricing and hedging accuracy. Overall, the results indicate that a non-stationary two-factor model provides the best performance.

Suggested Citation

  • Marcel Prokopczuk, 2010. "Pricing and Hedging in the Freight Futures Market," ICMA Centre Discussion Papers in Finance icma-dp2010-04, Henley Business School, University of Reading.
    • Handle: RePEc:rdg:icmadp:icma-dp2010-04
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    Citations

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


    Cited by:

    1. Yu, Fangping & Xiang, Zhiyuan & Wang, Xuanhe & Yang, Mo & Kuang, Haibo, 2023. "An innovative tool for cost control under fragmented scenarios: The container freight index microinsurance," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 169(C).
    2. Alexandridis, George & Kavussanos, Manolis G. & Kim, Chi Y. & Tsouknidis, Dimitris A. & Visvikis, Ilias D., 2018. "A survey of shipping finance research: Setting the future research agenda," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 115(C), pages 164-212.
    3. Fred Espen Benth, 2021. "Pricing of Commodity and Energy Derivatives for Polynomial Processes," Mathematics, MDPI, vol. 9(2), pages 1-30, January.
    4. Zhong, Huiling & Zhang, Fa & Gu, Yimiao, 2021. "A Stackelberg game based two-stage framework to make decisions of freight rate for container shipping lines in the emerging blockchain-based market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 149(C).
    5. Jingbo Yin & Meifeng Luo & Lixian Fan, 2017. "Dynamics and interactions between spot and forward freights in the dry bulk shipping market," Maritime Policy & Management, Taylor & Francis Journals, vol. 44(2), pages 271-288, February.
    6. Gong, Yuting & Li, Kevin X. & Chen, Shu-Ling & Shi, Wenming, 2020. "Contagion risk between the shipping freight and stock markets: Evidence from the recent US-China trade war," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 136(C).
    7. Nguyen, Duc Khuong & Sensoy, Ahmet & Sousa, Ricardo M. & Salah Uddin, Gazi, 2020. "U.S. equity and commodity futures markets: Hedging or financialization?," Energy Economics, Elsevier, vol. 86(C).
    8. Lourdes Gómez-Valle & Julia Martínez-Rodríguez, 2021. "Including Jumps in the Stochastic Valuation of Freight Derivatives," Mathematics, MDPI, vol. 9(2), pages 1-17, January.
    9. Lourdes Gómez-Valle & Miguel Angel López-Marcos & Julia Martínez-Rodríguez, 2020. "Two New Strategies for Pricing Freight Options by Means of a Valuation PDE and by Functional Bounds," Mathematics, MDPI, vol. 8(4), pages 1-12, April.
    10. Adland, Roar & Alizadeh, Amir H., 2018. "Explaining price differences between physical and derivative freight contracts," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 118(C), pages 20-33.
    11. Lourdes Gómez‐Valle & Ioannis Kyriakou & Julia Martínez‐Rodríguez & Nikos K. Nomikos, 2021. "Estimating risk‐neutral freight rate dynamics: A nonparametric approach," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 41(11), pages 1824-1842, November.
    12. 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.
    13. Georgios I. Papayiannis, 2022. "Static Hedging of Freight Risk under Model Uncertainty," Papers 2207.00862, arXiv.org.

    More about this item

    Keywords

    Freight Futures; Hedging; Shipping Derivatives; Imarex;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • Q40 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Energy - - - General

    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:rdg:icmadp:icma-dp2010-04. 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.

    We have no bibliographic references for this item. You can help adding them by using 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: Marie Pearson (email available below). General contact details of provider: https://edirc.repec.org/data/bsrdguk.html .

    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.