Study On Ship Financing Strategy Based On IRR-GARCH Model

Shipping industry, a typical capital-intensive industry with high risk, requires a huge payback period. Since the outbreak of the financial crisis in 2008, the global shipping market fallen into a cyclical tough period, and representatively dry-bulk market had been stood below the breakeven point. Facing such fierce market, most of the ship owners had to manage company in the serious loss of cash, lack of funds, and short of operating cash flow.Ship financial leasing is one of the most welcome financial choices in today's shipping market. With flexible financing structure, inventory of operating funds, higher professional understanding, and quickly boosting development of shipping enterprises, financial leasing is an important catalyst for shipping industry development. However, ship financial leasing projects have to face complex risk driving factors, lots of uncertainties and potential risks. With large investment, long payback period of funding, and its multi-participants, ship financial leasing is also an obvious industry with high density of capital, violent cyclical fluctuations, and strong specialization characteristic, which lead to potential, complex, unexpected and uncontrollable risk factors. As a result, it especially requires banking institutions to make effective evaluations on the risk quantification of ship financing projects to construct a reasonable model for the risk control, which is a matter of great significance.Based on the study of ship-leasing development mode and the theory of risk control by qualitative and quantitative analysis method, this thesis applies IRR Model(Internal Rate of Return) to analyze the ship business conditions and financial credit conditions. In addition, IRR Model combined with Va R Model(Value at Risk) is applied to construct IRR-GARCH Model to make combination and quantization on the risk control factors and financing ratio of ship financing project.Furthermore, this thesis introduces a specific case in Company A, the 170000 DWT Capesize financing project, and makes empirical analysis, through which it is obvious that based on the listing and fluctuating logarithmic rate of return of Index BCI, as original sample data, can fit the IRR-GARCH Model well. Then I make analysis and assumptions on the ship business conditions and financial credit conditions. At last, this thesis applies IRR-GARCH Model to make effective calculation on the minimum daily rent of the spare bareboat charter and of the time charter in credit condition in the Capesize case, which predicts an ideal realistic meaning.