Study On Volatility Of International Tanker Freight Rates Based On GARCH Model

The yield and volatility of tanker freight rates have always attracted the attention of tanker operators. Volatility of freight rates is an important factor in formation of transportation policy and it affects the ship owners' cash flow. To understand the rules of volatility is crucial for ship owners and investors to grasp the dynamic of international tanker market. The GARCH model is an important type of time series model and has already been widely used to model economic and financial time-series data. This thesis applies it in international tanker freight market to explore the rules and reason of volatility and makes a concise assessment. The thesis is structured as follows:Firstly, it starts with a brief analysis of the tanker market and then qualitatively investigates the internal causes of volatility from different aspects. The generation, development, composition and computation method of BITR (The Baltic International Tanker Routes) have been discussed.Secondly, it briefly reviews the theoretical basis of GARCH model and describes the tanker freight rate series in four sub-markets depending on vessel sizes.Thirdly, the GARCH model is implemented to reveal the persistence and sensitivity of volatility vary across sub-markets. Leverage effect is also tested to reflect freight rates' reaction to both good news and bad news based on EGARCH and TGARCH model. In addition, the fitting effects of three type models have been compared for each sub-market so as to decide the best fitting models.Finally, the general conclusions of the thesis are presented. Conclusions and suggestions are made for business practitioners and academic researchers.