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Pricing in Offshore Shipping Markets : A Two-Regime Mean Reverting Jump Diffusion Model with Seasonality

Bjørkelund, Atle Magnus
Master thesis
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URI
http://hdl.handle.net/11250/275796
Date
2014
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  • Master Thesis [4656]
Abstract
The academical research on o shore shipping markets is very limited.

This thesis is an attempt to improve our understanding of the

spot rates for o shore shipping markets and consequently our ability to

do more accurate pricing. I perform an empirical analysis of the most

signi cant characteristics of the spot rates for Platform Supply Vessels

(PSV) and Anchor Handling Tug Supply (AHTS) vessels and propose

a model able to capture these dynamics. The proposed spot rate model

is an extension to the simple geometric mean reversion model, incorporating

two-regime mean reversion, jumps and a deterministic seasonal

function. Parameters are estimated based on the historical spot rates

and the model is calibrated for the North Sea market. Using modern

derivatives techniques I derive the risk adjusted spot rate process and

adopt Tvedt's [30] approach to pricing vessels as a spot rate contingent

claim on cash

ows, where the pay-o structure can be described as a

continuous American call option. The proposed spot rate model is then

applied to the problem and the partial di erential equation satisfying

the value function of a vessel is derived.

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