Pricing and Hedging in the Freight Futures Market
Marcel Prokopczuk ()
ICMA Centre Discussion Papers in Finance from Henley Business School, University of Reading
In this article, we consider the pricing and hedging of single route dry bulk freight futures contracts traded on the International Maritime Exchange. Thus far, this relatively young market has received almost no academic attention. In contrast to many other commodity markets, freight services are non-storable, making a simple cost-of-carry valuation impossible. We empirically compare the pricing and hedging accuracy of a variety of continuous-time futures pricing models. Our results show that the inclusion of a second stochastic factor significantly improves the pricing and hedging accuracy. Overall, the results indicate that a non-stationary two-factor model provides the best performance.
Keywords: Freight Futures; Hedging; Shipping Derivatives; Imarex (search for similar items in EconPapers)
JEL-codes: C50 G13 Q40 (search for similar items in EconPapers)
Pages: 37 pages
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Journal Article: Pricing and hedging in the freight futures market (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:rdg:icmadp:icma-dp2010-04
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