Research On Fixed Price Of Freight Index Option In Shipping Market

At the beginning of this century, the world shipping industry has been experiencing a flourishing period because of the influence of "China factor" and other comprehensive factors. The weatherglass of the international shipping market—the Baltic Shipping Freight Index, has reached a new higher level in the history. Butat the same time, the extortionate freight and it's volatility also bring a higher risk to the ship owners and charters, as a result of the risk, the marine derivative began to become prevalent in the beginning of the century. How to use these derivative tools to avoid or reduce the freight risk has become the focus of the industrial research. Now, more and more shipping participates and investors putting their eyes on a more efficient derivative tools, because it just commenced in recent years, therefore, there haven't a systemic introduction and research about the pricing system of the shipping option in our country currently.In this paper, we introduced the main methods used for reducing shipping freight risk, and focus the study on the pricing of the freight option. By comparing the similarities and differences between freight index and stock, we established a reasonable shipping option pricing model for BDI on the basic of the famous option pricingmodel——Black-Scholes formula, then we use martingale measure method to derivethe freight option pricing formula, after considering the characteristics of shipping activities which are "lay-up level" and "mean reversion". After finishing the modeling, we use GARCH (p, q) model to estimate the volatility which is a very import parameter in the formula.In order to explain the importance of freight option in shipping industry, we construct hedging examples based on the benefit of ship-owner and consignor, which is according to IMAREX's trading types and BDI on the basic of the new model, through the application example, it proves that the freight option has a evident effect in avoiding the freight risk and has a bright future in reducing risk and risk investment. In the end, we analysis the application and development of marine derivative in our country, especially for freight option, and indicate that there is a large distance between our companies and their peers in western countries, some shipping companies even still have qualm in the use of derivative. We emphasize that it's necessary to build a shipping derivative trading platform in our country through analyzing the future of our shipping environment. We should keep up with the developing pace of world shipping market, and make use of "China factor" adequately, let "China factor" really benefit our marine industry, and complete the conversion from large shipping country to a shipping power in the world.