Research On Influeilcing Factors And Risk Measurement Of Default Risk Of Time Charter Party

After financial crisis, the volume of world trade are weakening, the shipping economics which rely heavily on the international trade are still at flat bottom. The charterers who have signed some time charter party during the high market now have difficulties in business operation, even have the risk of being deficit or going bankrupt. Some charterers default since they could not stand for the risk of losing or going bankrupt, the time charter party will not perform normally which bring a great loss to the ship owner. In order to compensate the default risk facing by the ship owners, the paper study the factors influencing the default risk premium by charterer. This is very important not only to ship owners and charterers but also ship financiers, credit rating agencies.Through the qualitative analysis, the factors which influence the period timecharter default risk contains the freight market condition, period charter duration and the financial condition of the charter. Ideas come from the finding in the general finance literature on default risk for over-the-counter (OTC) interest rate-swaps, the research on period timecharter default risk is similar. Knowledge brokering from the structural models using in the interest rate swaps default risk research, the paper build the model of term structure of freight rate basic on the relationship between the timecharter duration and timecharter rates.Refer to the meaning of default option value and the corresponding risk premium attributable to default risk in interest rate swap, the paper build the model of time-varying market value of period timecharter. After defining the trigger point for the performance of default, the model of evaluating the default risk premium is built here. Meanwhile, in order to examine the feasibility of evaluating model, we need to use the simulation of spot freight rate, so the paper adopt Stochastic Volatility models. Finally, designing the numerical solution algorithm, the models described is implemented numerically in matlab software. Spot freight rate paths are generated using Monte Carlo simulation. The results of risk premium attributable to default risk for different levels of the spot freight rate, period charter durations and charterer capital reserve are obtained.The simulation results in this paper support that there exists a time-varying risk premium in the physical shipping freight market. We have shown that the default risk premium is positive and increasing in the spot freight rate level and period charter duration, and is negative and decreasing in the charterer capital reserve. From a practical point of view, the results in this paper can be used to assess the risk of default, and appropriate adjustment of the period charter rate when making chartering decisions.