Application Research Of Tanker Freight Fluctuation Risk Management Method

The fluctuation of ocean freight is the embodiment of market risk. How to use risk management tool to avoid ocean freight fluctuation has been a long concerned question for shipping industry field. The forward freight agreement is now the most active ocean freight risk management tool, especially since 2002, with the fierce rise in shipping market that we couldn't expected within the passing 100years, the market fluctuated so strong and the participant's demands of hedge trade has pushed forward freight market to develop fast. Though as for now, not much Chinese shipping company participate in FFA market, but more and more concern has been given in this market, and we know for sure more Chinese shipping company will participate in FFA market in the future.Now tanker freight FFA is only traded on voyage charter routes and not all BITR routes is included. In this article, two typical route TD3 and TC2 are choosen, those routes are the most activity and have the highest trading volume. For the research of these two routes' spot and FFA price correlation and the effect of hedge function, a period of historicial spot and FFA datas are used here. For the thoroughly hedge of freight, optimization hedge ratio is introduced here, according to which operators can buy(sell)the great number of agreements in order to maximum hedge freight risk. By calculation, it's clear that spot price and FFA price have very high correlations and there effect of hedge function are quite same in these two routes. The effect of risk avoid is better through freight hedge trade but it shows a coming down trend with the periods of agreement's rising.VaR (Value at Risk) is now the mature developed tool in measure risk. In this article, for the purpose of measure the risk value of tanker freight index, GARCH model is used, but it is discussed under the yield changes falls to normal school condition. Measure results have passed the failure rate checking. It means that althought the model used in this article is predigested so the accuracy of the result is not good enough, but this model is viable in measure the risk value of the fluctuation of tanker freight index. In actual practice, this model can be used as a simple and convenient tool. VaR method used in this article is mainly because it provides a actual risk value for tanker transportation runners to reference, and accord to their own risk bear degree to make better risk management strategy in order to avoid freight loss.