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Income Uncertainty and the Decision to Invest in Bulk Shipping

Kyriakou, I., Pouliasis, P. K., Papapostolou, N. C. and Nomikos, N. (2017). Income Uncertainty and the Decision to Invest in Bulk Shipping. European Financial Management, doi: 10.1111/eufm.12132

Abstract

We develop a coherent framework for the valuation of real assets and determination of the optimal time to invest. To this end, we model the stochastic nature of income and develop methodologies for valuing traded derivatives to facilitate model calibration and for assessing real investment projects. A valuation paradigm for freight-linked assets is presented and the effects of uncertainty in the key parameters are examined by means of a sensitivity analysis. Using a real option approach, we demonstrate its usefulness in investment appraisal and optimal timing of entry. We accompany our theoretical results with illustrative examples from the shipping industry.

Publication Type: Article
Additional Information: This is the peer reviewed version of the following article: Kyriakou, I., Pouliasis, P. K., Papapostolou, N. C. & Nomikos, N.K. (2017). Income Uncertainty and the Decision to Invest in Bulk Shipping. European Financial Management, which has been published in final form at http://dx.doi.org/10.1111/eufm.12132. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
Publisher Keywords: real options, investment, uncertainty, contingent claims, shipping
Subjects: H Social Sciences > HG Finance
Departments: Cass Business School > Actuarial Science & Insurance
Cass Business School > Finance
URI: http://openaccess.city.ac.uk/id/eprint/17134
[img] Text - Accepted Version
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