Portfolio value-at-risk estimation for spot chartering decisions under changing trade patterns: A copula approach

Area of Science:

• Maritime Economics
• Financial Risk Management
• Econometrics

Background:

• Geopolitical shifts, particularly US-China relations, create trade pattern volatility.
• Transport service providers face elevated risk and uncertainty.
• Accurate risk estimation is crucial for shipowners' mitigation strategies.

Purpose of the Study:

• To propose a novel copula-based GARCH model for joint multivariate distribution estimation in Value-at-Risk (VaR) calculations.
• To enhance the accuracy of VaR estimation for shipping portfolios compared to traditional methods.
• To analyze expected portfolio VaR for Panamax soybean trading routes amid US-China trade disruptions.

Main Methods:

• Utilized a copula-based Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model.
• Estimated the joint multivariate distribution for VaR calculation.
• Conducted an empirical study on Panamax soybean trading routes with reduced US-China trade volumes.

Main Results:

• The proposed copula model demonstrates superior performance in capturing VaR compared to traditional methods.
• The study provides an examination of expected portfolio VaR under specific trade turmoil conditions.
• Identified significant implications for shipowner decision-making in fleet repositioning and risk management.

Conclusions:

• The copula-based GARCH model offers a more successful approach to VaR estimation in shipping.
• Findings provide valuable insights for shipowners managing risks associated with global trade dynamics.
• This research contributes to the limited literature on shipping portfolio VaR analysis.