Research On Option Pricing And Applications In Container Shipping Market

Since the financial crisis in2008, as a representative of the shipping market, freight rate of container shipping market fluctuates significantly increased. The risks that shipping operators,which including Chinese shipping enterprise have to face are growing. In this case, freight derivatives, as a risk management tools, is introduced to the shipping market. Freight derivatives in the dry bulk cargo and oil tanker transport market have developed very well, but in container transport market, freight derivatives development has just started. Because freight options have high efficiency in hedging and speculative benefit, shipping operators like freight options. But now in container freight derivatives market, there is only futures products, so the launch of container freight options can provide more effective hedging tool for container transportation managers.Option pricing is the central part of options trading. Because the freight options is a new type of option, pricing research literature about freight options is less. Most of the study about freight options pricing is based on the classical option pricing model, i.e. B-S model. Because the container freight options is a kind of arithmetic average Asian options, and this kind of options do not have explicit expression in the classic option pricing model, i.e. B-S model, so in this paper we change container freight options into a kind of special form of European options, and we obtain the option pricing model of container freight combined with container freight fluctuation characteristics of futures contracts. Because the volatility in the freight option pricing is very important, we introduce the model to calculate the freight volatility. And we make a case analysis about estimating volatility and option pricing.In this study, we introduced development present situation, the function and the members of the market of the container freight derivatives market, and we construct the container freight options market. In order to describe hedging benefit of freight options, this paper makes a case analysis from the liner companies and owner of cargo respectively, and analyzes hedging effect of the container freight option by using real examples.