Research On The Hedging Efficiency Of FFA In The Dry Bulk Shipping Market

Changes about supply and demand, weather and other factors in the shipping market, result in volatility in the dry bulk shipping market freight and bring a huge loss for the shipping participants. Chinese shipping companies also suffer more losses. Most shipping companies use forward freight agreements to avoid risks. In the use of FFA of dry bulk market hedging, optimal hedge ratio is very important to decide, if use the improper selection of hedging ratio will affect the hedging ratio of hedging efficiency. The higher the hedging efficiency, hedging ratio model can explain the greater the degree of variance to reduce earnings volatility. On the contrary, using FFA and reducing risk is not effective.At present, hedge ratio calculation models are mainly least squares regression (OLS), vector auto regression (VAR), vector error correction model (ECM), and other static models, DVEC model, diagonal BEKK model and other dynamic models. This article mainly uses the asymmetric BEKK model, comparing with other models to study hedging efficiency of FFA in C3 and C5 route.In the evaluation of hedge efficiency, the commonly used evaluation index is the static evaluation index of Ederington. Because the variance and the optimal hedge ratio of dynamic hedging model is time-varying, static hedging efficiency evaluation can not reflect the characteristics of the dynamic model. In this paper, we will correct the static index, dynamic variance and ratios instead of static, so we get dynamic hedging efficiency evaluation, and compare the average, median,5% quantile and 95% quantile of different models hedge ratio and efficiency under dynamic hedging.By comparing the hedging effect of C3 and C5 route each model, studying the following conclusions. Comparing hedging ratio of each model, static model OLS hedge ratio is the largest, the dynamic hedging model asymmetric BEKK model view the biggest, C5 routes hedge ratio is greater than C3 route. Comparing hedging efficiency of the model, the static hedging model OLS model corresponding to the hedging efficiency and ECM is basically the same, the hedging effectiveness are better than the VAR model. The maximum efficiency of dynamic hedging model is asymmetric BEKK model, then from the point of view of C3 and C5 route, obtain under the same model of hedging efficiency consistent, between results obtain little difference.Because the static hedge model has big gap from reality, ignoring the dry bulk shipping freight market volatility clustering, so based on static hedging efficiency of the evaluation model may be inaccurate. According to the hedging efficiency of asymmetric BEKK model is the highest in the dynamic hedging model, so the model is the optimal hedge ratio model. This research can be direct shipping participants in the use of FFA on dry bulk hedging, select the optimal hedge ratio, to the maximum extent to reduce the risk of shipping, reduce operating costs and losses.