Valuation of freight transportation contracts under uncertainty

Mei-Ting Tsai, Jean-Daniel Saphores and Amelia Regan

Transportation Research Part E: Logistics and Transportation Review, 2011, vol. 47, issue 6, 920-932

Abstract: This paper applies concepts from the theory of Real Options to hedge uncertainty in transportation capacity and cost using derivative contracts, called truckload options. We make three contributions. First, we provide a closed-form pricing formula for basic truckload options when the truckload spot price on a given lane follows a simple mean-reverting process. Second, since only monthly statistics about truckload spot prices are currently available, we provide an approach to estimate the parameters needed to value truckload options. Finally, a numerical illustration based on real data shows that truckload options could be valuable to both shippers and carriers.

Keywords: Truckload contract; Option pricing; Ornstein–Uhlenbeck process; Uncertainty; Derivatives; Spot market (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:transe:v:47:y:2011:i:6:p:920-932

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DOI: 10.1016/j.tre.2011.03.005

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