The stochastic seasonal behavior of freight rate dynamics

摘要

Previous studies on freight rate dynamics have explored the behavior of freight rates and their characteristics, including unit root, among other factors. However, there are few articles related to the stochastic process characterizing their dynamics. Moreover, to the best of the authors' knowledge, there are no articles that incorporate seasonality in the freight rate dynamics. In the present article, we propose a factor model for the stochastic behavior of TCE (Time Charter Equivalent) and WS (World Scale) prices where one factor is a seasonal factor. In addition, based on this type of modeling, we study the seasonal behavior of freight rates and find that models allowing for stochastic seasonality outperform models with deterministic seasonality. Therefore, ship owners and charterers can accommodate their business strategies to the facts that (i) freight rates are higher in winter and spring than in the summer and autumn and that (ii) these differences are not deterministic but stochastic. These facts have also important implications in derivatives valuation and hedging.