Valuation models

Freight FFAs and options

Forward freight agreements settling on each month's average route index against a fixed price, and freight options as Asian options on the monthly average, with the fair FFA price, delta and vega.

Inputs

Results

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Methodology

Conventions

  • Each month settles on the average of the route's business-day fixings, paid at the month end.
  • Options are Asian options on the month, moment-matched to a lognormal.

References

  • Kavussanos and Visvikis (2006)
  • Levy (1992)

Formulas

FFA
Q Σₘ Dₘ (F̄ₘ − K)
Option
Q Σₘ Dₘ E[max(S̄ₘ − K, 0)]