Options on Freight Rates

Amir H. Alizadeh and Nikos K. Nomikos
Additional contact information
Amir H. Alizadeh: Cass Business School, City University
Nikos K. Nomikos: Cass Business School, City University

Chapter 7 in Shipping Derivatives and Risk Management, 2009, pp 217-257 from Palgrave Macmillan

Abstract: Abstract As we saw in the previous chapter, the use of FFAs as a trading and speculative instrument has been increasing constantly since their introduction in the early 1990s. As the market grows and becomes more mature, market participants also look at exploring the usefulness of other derivatives instruments, most notably options. Although FFAs provide reasonable hedging strategies and enable participants to lock in a given freight rate over a period of time, they lack the flexibility that would enable their users to maintain the hedge if the market moves against them, and to be able to participate in the market when market conditions are favourable. Option contracts, on the other hand, offer this flexibility. Freight options are traded as OTC instruments, in the same fashion as FFAs, and over recent years they have become more popular with shipping-market practitioners. Shipping-freight options were first introduced in 1990 when trading options on BIFFEX started. Like the BIFFEX contracts however, trading on these options never picked up and eventually they were de-listed in April 2002.

Keywords: Option Price; Call Option; Strike Price; Underlying Asset; Freight Rate (search for similar items in EconPapers)
Date: 2009
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-0-230-23580-9_7

Ordering information: This item can be ordered from
http://www.palgrave.com/9780230235809

DOI: 10.1057/9780230235809_7

Access Statistics for this chapter

More chapters in Palgrave Macmillan Books from Palgrave Macmillan
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().