| The VaR (value-at-risk) was developed in the 1990s and obtained an increasingly important role in market risk management. The VaR summarizes the worst loss over a target horizon with a given level of confidence. In this paper, we assess the risk in world dry bulk shipping market by calculating the VaR of dry bulk freight index. The daily return of freight index of three different types of bulk vessels in the sample period selected has been examined. The freight indexes we use are the BCI, BPI, and BHMI, and the sample period we select is from 4th Sep 2000 to 23rd Dec 2005.Because of the characteristics of fat tail and spiked peak distribution, volatility clustering and significant ARCH factor of the daily return series, we use the GED-EGARCH VaR model. Using the model we can compute the one-day-ahead VaR and also investigate the asymmetry in the conditional variance of daily return series. The ship owners and charterers many times care about the long-term freight rates, so we compute the VaR for one month based on the daily VaR calculating result.The dry bulk shipping market was under the best period in the history since midyear of 2003. On 21 February 2004 BDI (Baltic Dry Index) reached a new historical record at 5681 points, and on 6 December 2004 the BDI stood at 6208 points, which made history in shipping. The market before midyear of 2003 was significant different from that of after, and the market is more complex in the booming period. So in our analysis, we divided the sample period selected into two. And the VaR values are compared between different sample periods also in different vessel type. We also propose several examples which make use of the VaR value to assess the risk in designated circumstances, and practice better method to make more profit and avoid risks. The results from our investigation are useful for the executives and investors in the dry bulk shipping market to increase operation profit gain and reduce investment risk. |
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