A NOTE ON THE PRICING OF INDEX AMORTISING RATE SWAPS IN A WORST-CASE SCENARIO

2002 ◽  
Vol 05 (05) ◽  
pp. 447-454
Author(s):  
D. EPSTEIN ◽  
P. WILMOTT
Keyword(s):  
Interest Rate ◽  
Uncertain Parameters ◽  
Optimal Price ◽  
Case Scenario ◽  
Worst Case ◽  
Ideal Candidate ◽  
Worst Case Scenario ◽  
Rate Swap ◽  
Static Hedge

The index amortising rate swap is an ideal candidate for valuation under a worst-case scenario. We price this illiquid contract using a non-probabilistic interest rate with uncertain parameters and then form a static hedge using liquid, market-traded swaps, to find an optimal price.

scholarly journals Hedging ship price risk using freight derivatives in the drybulk market

2019 ◽  
Vol 5 (1) ◽  
Author(s):  
Roar Adland ◽  
Haakon Ameln ◽  
Eirik A. Børnes
Keyword(s):  
Least Squares ◽  
Empirical Work ◽  
Ordinary Least Squares ◽  
Price Risk ◽  
Conditional Correlation ◽  
Hedge Ratio ◽  
Future Earnings ◽  
Dynamic Conditional Correlation ◽  
Hedge Ratios ◽  
Static Hedge

AbstractWe show that a fixed-maturity time-weighted Forward Freight Agreement (FFA) portfolio should be used to proxy the expected future earnings of a vessel. We investigate the corresponding hedging efficiency when using a portfolio of FFA prices to hedge ship price risk of both static hedge ratios calculated using Ordinary Least Squares estimation and the dynamic hedge ratios generated from a dynamic conditional correlation GARCH (1,1) model. We find that the hedging efficiency is greater for newer vessels than older vessels and that the static hedge ratio outperforms the dynamic hedge ratio. Our work is an extension of earlier empirical work which has only considered the hedging efficiency of varying-maturity calendar FFA contracts for a single vessel age.

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