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Optimal tanker chartering decisions with spot freight rate dynamics considerations

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  • Wang, He
  • Huang, Simin
  • Liu, Zhen
  • Zheng, Li

Abstract

We study a tanker chartering decision problem faced by refinery companies. The decision process is formulated as an optimal stopping problem with geometric Brownian motion for the spot freight rate dynamics and a Poisson type arrival process for the tankers. We show the problem can be solved efficiently by partial differential equations. The study, for the first time, provides innovative techniques for modeling freight rate uncertainty facing refinery companies. An application of the model to a refinery company in China shows the benefit of our method compared to the company’s current tanker-chartering strategy.

Suggested Citation

  • Wang, He & Huang, Simin & Liu, Zhen & Zheng, Li, 2013. "Optimal tanker chartering decisions with spot freight rate dynamics considerations," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 51(C), pages 109-116.
    • Handle: RePEc:eee:transe:v:51:y:2013:i:c:p:109-116
    DOI: 10.1016/j.tre.2012.12.006
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    References listed on IDEAS

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    1. André de Palma & Robin Lindsey & Emile Quinet & Robert Vickerman, 2011. "Handbook Of Transport Economics," PSE-Ecole d'économie de Paris (Postprint) halshs-00754912, HAL.
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    5. Alberto Behar & Anthony J. Venables, 2011. "Transport Costs and International Trade," Chapters, in: André de Palma & Robin Lindsey & Emile Quinet & Roger Vickerman (ed.), A Handbook of Transport Economics, chapter 5, Edward Elgar Publishing.
    6. Adland, Roar & Cullinane, Kevin, 2006. "The non-linear dynamics of spot freight rates in tanker markets," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 42(3), pages 211-224, May.
    7. S. D. Jacka, 1991. "Optimal Stopping and the American Put," Mathematical Finance, Wiley Blackwell, vol. 1(2), pages 1-14, April.
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    Cited by:

    1. Siddiqui, Atiq W. & Basu, Rounaq, 2020. "An empirical analysis of relationships between cyclical components of oil price and tanker freight rates," Energy, Elsevier, vol. 200(C).

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