The Pricing of Forward Ship Value Agreements and the Unbiasedness of Implied Forward Prices in the Second-Hand Market for Ships

Roar Ådland, Haiying Jia and Steen Koekebakker ()
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Roar Ådland: [1] Agder University College, School of Management, Kristiansand, Norway [2] Clarksons Research, London, UK
Haiying Jia: Cass Business School, City University, London, UK

Maritime Economics & Logistics, 2004, vol. 6, issue 2, 109-121

Abstract: This paper outlines the methodology to price the newly introduced Forward Ship Value Agreements (FOSVAs). FOSVAs are derivatives aimed at managing asset risk in the second-hand markets for bulk vessels and are traded over the counter. We then estimate the implied forward prices from historical data for vessel prices and the term structure of freight rates under the assumption that the cost-of-carry relationship holds and investigate whether the implied forward prices have been unbiased predictors of realised prices. The empirical evidence rejects the unbiasedness hypothesis in all the cases studied and supports the presence of a risk premium. Maritime Economics & Logistics (2004) 6, 109–121. doi:10.1057/palgrave.mel.9100098

Date: 2004
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