Transport services and the valuation of flexibility over business cycles

Jostein Tvedt

Transportation Research Part A: Policy and Practice, 2019, vol. 130, issue C, 517-528

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.

Keywords: Equilibrium derivative pricing; Mean reversion; Transportation (search for similar items in EconPapers)
JEL-codes: G12 R41 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (1)

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DOI: 10.1016/j.tra.2019.09.057

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