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Pricing and Hedging in the Freight Futures Market


  • Marcel Prokopczuk

    () (ICMA Centre, University of Reading)


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, Reading University.
  • Handle: RePEc:rdg:icmadp:icma-dp2010-04

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    More about this item


    Freight Futures; Hedging; Shipping Derivatives; Imarex;

    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


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