Work

Measuring the Market Risk of Freight Rates: a Value-at-risk Approach

Year: 2008

Type: article

Abstract: The fluctuation of shipping freight rates (freight rate risk) is an important source of market risk for all participants in the freight markets including hedge funds, commodity and energy producers. We measure the freight rate risk by the Value-at-Risk (VaR) approach. A range of parametric and non-parametric VaR methods is applied to various popular freight markets for dry and wet cargoes. Backtesting is conducted in two stages by means of statistical tests and a subjective loss function that uses the Expected Shortfall, respectively. We find that the simplest non-parametric methods should be used to measure freight rate risk. In addition, freight rate risk is greater in the wet cargoes markets. The margins in the growing freight derivatives markets should be set accordingly.

Source: International Journal of Theoretical and Applied Finance

DOI: 10.1142/s0219024908004889

Authors: TIMOTHEOS ANGELIDIS, GEORGE SKIADOPOULOS

Institutions: University of Peloponnese, University of Piraeus, University of Warwick

Language: English

Topic: Financial Risk and Volatility Modeling

Subfield: Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: green

OpenAlex ID: W1977408451

FWCI: 5.243

Cites: 48

Cited by: 51

Related to: 10