Valuation Of Freight Options Under Regime-switching Models

The rapid development of China's shipping industry is accompanied by the rise and innovation of shipping derivatives.Shanghai has been the world's largest container han-dling city for many years.In order to meet the needs of development,China has put forward Shanghai export container freight index(SCFI),and freight option has attracted more and more attention from scholars.Due to the short time for freight index to be introduced in China,there are few studies on the pricing theory of freight option with freight index,taking SCFI as an example,as the underlying asset.Therefore,the pric-ing research of freight option has certain practical significance and can provide certain theoretical support for the development of shipping derivatives in ChinaIn the process of shipping,the freight is not invariable,it usually be affected by the economic environment.Therefore,this paper considers the impact of the economic envi-ronment in the pricing process of freight options.It is also one of the biggest advantages of this kind of model that the change of macroeconomic conditions is taken into account by introducing the system transformation model.Although the regime switching model is widely used in the pricing of derivatives,there are few studies that consider the pricing of shipping derivatives under the regime switching model.Therefore,this paper mainly discusses the pricing of freight option based on the regime switching modelDue to the impact of the economic environment changes on the risk-free rate of return and volatility,we should also pay attention to its impact on the trend of option price change.Based on the regime switching model,this paper first discusses the pricing of freight options,and mainly uses the trinomial tree method to get the solving of the pricing process.Usually,freight options of the underlying asset price changes in a proper range,but because of some abnormal economic environment change,it will lead to huge changes in the price of the underlying assets,therefore,the paper based on the Poisson process and Cox process on regime switching jump diffusion model,and give the analysis about the sensitivity of model parameters.