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Transport services and the valuation of flexibility over business cycles

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  • Tvedt, Jostein

Abstract

The paper discusses the value of flexibility in light of transportation industry characteristics. High flexibility in utilising or adjusting capacity typically reduces the value of financial options on freight rates. Flexibility to lay up transportation capacity may affect the supply elasticity, the dynamics of freight rates and the valuation of real or financial options. The framework of the analysis is an industry specific model for the valuation of a European option. The model’s equilibrium specification indicates a link between the dynamics of freight rates, discount factors and the general business cycle. Data from the dry bulk maritime industry illustrates this phenomenon.

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  • Tvedt, Jostein, 2019. "Transport services and the valuation of flexibility over business cycles," Transportation Research Part A: Policy and Practice, Elsevier, vol. 130(C), pages 517-528.
    • Handle: RePEc:eee:transa:v:130:y:2019:i:c:p:517-528
    DOI: 10.1016/j.tra.2019.09.057
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    1. Tvedt, Jostein & Hovi, Inger Beate, 2024. "Container shipping: A market equilibrium perspective on freight rates formation post-Covid-19," Transportation Research Part A: Policy and Practice, Elsevier, vol. 179(C).

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    More about this item

    Keywords

    Equilibrium derivative pricing; Mean reversion; Transportation;
    All these keywords.

    JEL classification:

    • R41 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Transportation Economics - - - Transportation: Demand, Supply, and Congestion; Travel Time; Safety and Accidents; Transportation Noise
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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