Explaining price differences between physical and derivative freight contracts
Adland, R. & Alizadeh-Masoodian, A. 
ORCID: 0000-0003-1588-6214 (2018).
Explaining price differences between physical and derivative freight contracts.
Transportation Research Part E: Logistics and Transportation Review, 118,
pp. 20-33.
doi: 10.1016/j.tre.2018.07.002
Abstract
Physical time-charters (TC) and Forward Freight Agreements (FFAs) represent two hedging approaches that differ in terms of risks and physical access to transportation. We investigate the determinants of the time-varying TC-FFA freight rate differential in the dry bulk market. We find that TC and FFA prices are co-integrated but TC rates are generally priced higher than FFAs. The differential is explained by the level and slope of the term structure, a measure of economic ‘stress’ as well as vessel specifications and contractual terms. Finally, the TC-FFA differential is related to default risk premium and the potential convenience yield.
| Publication Type: | Article |
|---|---|
| Additional Information: | © 2018 Elsevier. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/ |
| Publisher Keywords: | FFAs, time-charter, basis risk, convenience yield, default risk. |
| Subjects: | H Social Sciences > HG Finance |
| Departments: | Bayes Business School > Finance |
| SWORD Depositor: |
Available under License Creative Commons Attribution Non-commercial No Derivatives.
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