Q2. What are the future works in "A regime switching approach for hedging tanker shipping freight rates" ?
The authors provide three explanations for the poor performance of tanker FFAs for risk management. The future for freight futures ? The case of the futures-cash basis.
Q3. What is the primary instrument used by tanker shipping market participants to manage their freight exposure risk?
A primary instrument used by tanker shipping market participants to manage theirfreight exposure risk is forward freight agreements (FFAs).
Q4. What are other alternative freight risk management techniques available to the participants in the tanker industry?
There are other alternative freight risk management techniques available to the participants in the tanker industry which includes time-charter contracts, contracts of affreightment (CoAs), and freight options.
Q5. What is the effect of average price settlement on hedging effectiveness?
In addition, Investigating the hedging effectiveness of contracts with different delivery choices, Pirrong, et al. (1994) argue that having multiple delivery choices can reduce liquidity and increase basis risk, which in turn reduces the hedging effectiveness.
Q6. Why is the time-varying hedge ratio considered to be superior to conventional and static hedges?
Because the conditional moments can change as new information arrives in the market and the information set is updated, it is believed that the time-varying hedge ratios should provide superior risk reduction compared to conventional and static hedges.
Q7. What is the main approach to deal with structural shifts and regimechanges in the behaviour and?
The main approach proposed in the literature to deal with structural shifts and regimechanges in the behaviour and relation between variables is the Markov Regime Switching (MRS) model (Hamilton, 1989).
Q8. What is the second possible explanation for the poor hedging performance of tanker FFAs?
The second possible explanation for the poor hedging performance of tanker FFAs isrelated to the weak linkage between the spot and FFA prices.
Q9. What is the out-of-sample hedging performance?
In fact, it seems that the best out-of-sample hedging performance in terms of variance reduction is realized when the naïve and conventional hedging strategies are employed.
Q10. Why do the spot and FFA returns series differ from normality?
According to the coefficients of excess kurtosis and Jarque-Bera statistics (Jarque and Bera, 1980), the spot and FFA returns series appear to significantly depart from normality and to be leptokurtic, which is consistent with the demand and supply pattern of shipping markets.
Q11. What are the main examples of dry-bulk FFAs?
For instance, Kavussanos and Visvikis (2004a, 2010) examine the effectiveness of dry-bulk FFAs as a risk management instrument for Panamax and Capesize freight rates.
Q12. How does the MRS-GARCH model integrate the state dependent variances and residuals?
In order to integrate the state dependent variances and residuals, the authors use Gray’s (1996) integrating method as adopted by Lee and Yoder (2007).
Q13. How does the MRS-GARCH hedge ratio work?
Given that hedgers are interested in obtaining an ex-ante indication of their potentialexposure, the authors extend their analysis further to determine whether the MRS-GARCH model can improve the out-of-sample hedging performance of tanker FFAs.