| With the development and adjustment, the scale of international dry-bulk shipping market is constantly enlarging and the competition is becoming more intense. So, to make the freight volatility under control is crucial for market participants. Recently, Forward Freight Agreement (FFA) is widely utilized to avoid risk in shipping market.Due to the inclusive risk of FFA, the paper lays emphasis on the cause of risk and offers feasible theories and methods on how to reduce the risk of the shipping enterprises and establish risk management mechanism. Through the study on comprehensive introduction of FFA and risk management, it is of great significance for market participants to control the cost and make investment decision.This paper mainly employs VaR (Value at Risk) model to do a quantitative study on indices volatility and agreement risks, and tables a proposal about risk management model for institute participants. The thesis is structured as follows:Firstly, it starts with a brief illumination of the making and structure of BDI. And it introduces the trading routes, procedure, contract terms and functions after reviewing the development of marine finance derivatives. Then the paper puts stress on the risk of FFA and its causes in details. At the end, the risk supervision and management of Forward Freight Agreement Broker Association (FFBA) is also given a presentation.Secondly, because of the characteristics of fat tail and spiked peak distribution, volatility clustering and significant ARCH factor of the yield, it takes FFA as a research object and implement GARCH model to reveal the volatility variation of interest rate. And then the paper employs Eview5.0 as the tool of quantitative analysis to compute the VaR of FFA. At the same time, it does the reliability test of model based on failure rate.Finally, it gives some suggestions basically from the perspective of consignors about the risk management on trading operations and organization establishment for institute participants. |
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