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An equilibrium price model of spot and forward shipping freight markets

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  • Tezuka, Koichiro
  • Ishii, Masahiro
  • Ishizaka, Motokazu

Abstract

We focus on non-storability, a characteristic of shipping freight that leads to an enormous gap between the widely-used no-arbitrage pricing theory and shipping freight derivative markets. Our main contribution is to modify and generalize the Bessembinder and Lemmon (2002) model. Equilibrium spot and forward price formulae are derived in a shipping freight market where shipowners, charterers, and speculators are non-homogeneous. From our formulae, we also obtain the properties of the forward risk premium and an optimal hedge ratio. In addition, we use the model to quantify the risk attitude of market participants.

Suggested Citation

  • Tezuka, Koichiro & Ishii, Masahiro & Ishizaka, Motokazu, 2012. "An equilibrium price model of spot and forward shipping freight markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 48(4), pages 730-742.
    • Handle: RePEc:eee:transe:v:48:y:2012:i:4:p:730-742
    DOI: 10.1016/j.tre.2011.12.007
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    Cited by:

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    5. Amir Alizadeh & Konstantina Kappou & Dimitris Tsouknidis & Ilias Visvikis, 2014. "Liquidity Risk Premia in the International Shipping Derivatives Market," ICMA Centre Discussion Papers in Finance icma-dp2014-15, Henley Business School, University of Reading.
    6. Alizadeh, Amir H. & Kappou, Konstantina & Tsouknidis, Dimitris & Visvikis, Ilias, 2015. "Liquidity effects and FFA returns in the international shipping derivatives market," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 76(C), pages 58-75.
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