The Market Price of Risks in The Shipping Freight Market

Abstract

This paper aims to estimate the market price of risks from the relationship between the spot and forward price dynamics in the shipping freight market. We employ three different stochastic models, which are analytically tractable and enable for pricing of forwards. Subsequently, we examine the forward curve performance. By doing that in such a way, we offer a method for estimating the market price of risk and the market price of volatility risk by adjusting theoretical prices to today’s observed forward curve. The findings of this study are essential for minimizing the difference of price gap between the theoretical and actual forward prices.