merged

Modelling the Freight Rates by using Barndoff-Nielsen and Shephard
Stochastic Volatility (BNS-SV) Model with a View Torwards
Pricing of Future Freight Rates
Aik Jia Yin
Supervisor: Dr Che Mohd Imran Bin Che Taib
Bachelor of Science (Financial Mathematics)
School of Informatics and Applied Mathematics
Shipping freight rates are very volatile. Such volatility property of freight rates may be
explained by supply and demand curves. Spot freight rates respond quickly to the demand
for transportation services and the availability of truckload capacity to move the freight.
In this study investigate the volatility of spot freight rates by a using Barndorff-Nielsen
and Shephard Stochastic Volatility (BNS SV) process. Such process is a nonlinear with
combination of randomness, volatility and rate of return which make the model explain
the freight rates behavior well. The spot freight rates of Supramax has been model and
then estimate the future freight rates. The forecasted theoretical prices is compared to
the actual one and the accuracy of BNS SV is determined. The results show that BNS SV
model is efficient to explain the volatility of shipping market and pricing the future freight
rates. Modelling the freight rates are beneficial to investors in shipping markets as well
as shipowners and charter for hedging in the shipping markets.
788 | UMT UNDERGRADUATE RESEARCH DAY 2018