IDEAS home Printed from https://ideas.repec.org/a/taf/marpmg/v24y1997i2p159-174.html
   My bibliography  Save this article

Valuation of VLCCs under income uncertainty

Author

Listed:
  • Jostein Tvedt†

Abstract

In this paper two alternative ways of modelling the stochastic nature of the time charter equivalent spot rate in the market for Very Large Crude Carriers (VLCC) are presented. It has been proposed that the freight rate follows an Ornstein-Uhlenbeck process. We follow up this approach of relating uncertainty directly to the rate process itself by suggesting a geometric mean reversion process. Empirical findings are presented. Then we address the question of valuing a VLCC. Due to the presence of uncertainty, flexibility to choose operation policy influences the value. We focus on lay up and scrapping as alternatives to spot operation. The option to lay up is relatively more important for a new vessel than for an old one, whereas the option to scrap becomes relatively more valuable as the vessel gets older.

Suggested Citation

  • Jostein Tvedt†, 1997. "Valuation of VLCCs under income uncertainty," Maritime Policy & Management, Taylor & Francis Journals, vol. 24(2), pages 159-174, January.
    • Handle: RePEc:taf:marpmg:v:24:y:1997:i:2:p:159-174
    DOI: 10.1080/03088839700000067
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/03088839700000067
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/03088839700000067?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

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


    Cited by:

    1. Alizadeh, Amir H. & Nomikos, Nikos K., 2007. "Investment timing and trading strategies in the sale and purchase market for ships," Transportation Research Part B: Methodological, Elsevier, vol. 41(1), pages 126-143, January.
    2. Alesii, Giuseppe, 2005. "VaR in real options analysis," Review of Financial Economics, Elsevier, vol. 14(3-4), pages 189-208.
    3. Engelen, Steve & Norouzzadeh, Payam & Dullaert, Wout & Rahmani, Bahareh, 2011. "Multifractal features of spot rates in the Liquid Petroleum Gas shipping market," Energy Economics, Elsevier, vol. 33(1), pages 88-98, January.
    4. Peter Løchte Jørgensen & Domenico De Giovanni, 2010. "Time Charters with Purchase Options in Shipping: Valuation and Risk Management," Applied Mathematical Finance, Taylor & Francis Journals, vol. 17(5), pages 399-430.
    5. Adland, Roar & Jia, Haiying & Lu, Jing, 2008. "Price dynamics in the market for Liquid Petroleum Gas transport," Energy Economics, Elsevier, vol. 30(3), pages 818-828, May.
    6. Tvedt, Jostein, 2002. "The effect of uncertainty and aggregate investments on crude oil price dynamics," Energy Economics, Elsevier, vol. 24(6), pages 615-628, November.

    More about this item

    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:taf:marpmg:v:24:y:1997:i:2:p:159-174. 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: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/TMPM20 .

    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.