An equilibrium price model of spot and forward shipping freight markets

We focus on non‐storability, a characteristic of shipping freight that leads to an enormous gap between the widely‐used no‐arbitrage pricing theory and shipping freight derivative markets. Our main contribution is to modify and generalize the model. Equilibrium spot and forward price formulae are derived in a shipping freight market where shipowners, charterers, and speculators are non‐homogeneous. From our formulae, we also obtain the properties of the forward risk premium and an optimal hedge ratio. In addition, we use the model to quantify the risk attitude of market participants.