Research On The Spillover Effect Between Forward Freight Agreement And Commodity Futures Market

Shipping demand is derived from international trade.The shipping industry is affected by various external factors such as world economic trends,politics,and natural conditions.The shipping market,especially the dry bulk market,has extremely violent fluctuations in freight rates.In order to effectively hedge the risk of freight rate fluctuations,a variety of freight rate derivatives have been born in the shipping industry,of which forward freight agreement(FFA)is the most widely used.Since FFA is a financial contract derived from freight rate,FFA market has not only the risk of general financial derivatives,but also the risk of abnormal fluctuations due to the cyclical and non-cyclical factors of the shipping industry.This brings great uncertainty to market participation in risk management using FFA.Fully understanding and evaluating the market risk of FFA,and accurately judging the market trend,are very important for participants in FFA market.This thesis introduces the concept of contagion effect between financial markets into forward freight market and its related commodity futures market,studies the cross-market spillover effect between FFA and commodity futures market,and explores the application of spillover effect in FFA market risk measurement.The research content is mainly in the following aspects: First,the basic concepts of the dry bulk market and FFA market are introduced,and the interaction between the shipping market and several related commodity markets is analyzed,iron ore shipping market and crude oil,iron ore markets selected in this thesis are explained in detail.Second,select two representative routes(C3 and C5 routes)for iron ore transportation in the dry bulk market,use Johansen cointegration test and vector error correction(VECM)model to study the linkage between the returns of FFA market,crude oil futures and iron ore futures markets.Third,using exponential generalized autoregressive conditional heteroscedasticity(EGARCH)model to study the volatility spillover relationship between FFA market,crude oil futures and iron ore futures markets.Finally,this thesis uses the EGARCH-VaR model to measure the risk of the forward freight agreements of these two routes,with and without considering the spillover effect,and compares the performance of each model using the kupiec test.The research in this thesis further identifies the risk sources of FFA market,and evaluates the risk scale of FFA market.The research results help to better grasp the formation mechanism of FFA market price and deeply understand the fluctuation mechanism of FFA market,which can provide reference for enterprises to formulate market transactions and risk management strategies.