| dc.description.abstract | This thesis is an analysis of a special type of option contract often found in
the shipping industry, a time charter with purchase option (TCPOP). The
TCPOP is a time charter (TC) agreement with an embedded purchase option.
The freight rate is modeled using the two mean reverting stochastic pro-
cesses: Ornstein Uhlenbeck (OU) and Geometric Mean Reversion (GMR).
Both models are estimated from historical spot freight rate data on Suezmax
tankers, using OLS. Based on the stochastic processes I specify a one factor
model for vessel values. The model is calibrated to historical prices for 5
year old vessels, by approximating the risk premium, using a numerical least
squares method. GMR seems to perform better than OU in predicting the
distribution of future freight rates and vessel values.
Using Monte Carlo simulation and applying the least square Monte Carlo
approach (LSM) proposed by Longsta & Schwartz (2001), I specify proce-
dures for approximating values of option contracts with di erent complexity,
where a Suezmax vessel is the underlying asset. GMR consistently predicts
higher vessel values and option values than OU. | nb_NO |
