Statistical arbitrage in the freight options market

Roar Adland, Lars Eirik Anestad and Bjarte Abrahamsen

Maritime Policy & Management, 2023, vol. 50, issue 2, 141-156

Abstract: We investigate whether there are consistent misspecifications of volatility in the freight options markets that can be exploited in profitable trading strategies. We derive smooth forward freight rate curves from observed market prices and convert these to term structures of historical volatility for the Capesize, Panamax and Supramax segments of the drybulk shipping market. The differences between the historical and implied volatility term structures form the basis for executing option trading strategies. We find that there exist statistical arbitrage profits in the freight option markets, suggesting a degree of market inefficiency.

Date: 2023
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DOI: 10.1080/03088839.2021.1975055

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