Valuation of Derivatives on the Cost Variables of the Shipping Market

In this paper, we present stochastic differential equations related to the cost variables of the shipping market. These SDEs arise under the addition of stochastic terms on the deterministic differential equations concerning the same variables. The financial interest arises from the fact that these SDEs may be used for the valuation of derivatives on these variables, such as futures, options, and others.

Veenstra and Ludemaz-in [2] and in Stopford-in [3].In the first reference what is mentioned is that ship-owners consider these costs as constant and they are interested in the evolution of the earnings arising from a ship.In the second reference, the authors examine a relation between the technical characteristics of the ship and the earnings.Finally, in the third reference, cost and revenue variables related to a ship are separated, according to the impact of them.From Chen-in [4], we take the following relations: where 1 2 , a a denote the utilization of ship's deadweight capacity for inbound and outbound voyages, respectively, m Q denotes the cargo turnover per year, DW denotes the deadweight of the ship, T denotes the service days per year, L denotes indicates the voyage distance, and c M denotes the average cargo han- dling rate at port.Also, 1 s t denotes the time sailing at a service speed for a round voyage, 2 s t denotes the time of canal transit for a round voyage, Also, in Chen (2011), differentiation of (1), with respect to DW implies

Financial Models and Derivatives
It is obvious that , , , , By these stochastic differential equations, we make the above differential models more realistic, since we moreover assume that each of these variables has a value-but subject to a variability, because we may not forecast its exact value at . , where T denotes transpose matrix.
We also consider a banking account, namely an assetwhose evolution is

Valuation
We consider a European call-option on the transport cost per cargo for a certain ship at the end of the service-time T at a strike-price K.The value of the underlying ''asset''-which is the cost is now equal to .
The difference of the two markets is that the market of m Q together with B is complete, while the market of the cost t a together with B is incomplete.
Hence, the second call-option may be replicated by the classical spot-market theory, see in Musiela and Rutkowski-[5], 5.1.2:The unique equivalent martingale measure for the discounted cargo-market as a spot market is , denotes the unique (martingale price) of the second call-option, where the , is incomplete, in order to find the non-arbitrage prices for the ( ) which implies the existence of the scalar processes , , 0, and consider a solution of the above stochastic equation (2) that satisfies the condition is a u  -martingale (we assume that the filtration is considered to be the same) -is ∅ksendal in [6], Chapter 12.
Uder the above considerations, the following Theorem is obvious: Theorem 3. The non-arbitrage prices of the call-option are-at time period 0: (

Conclusion
The conclusion of this brief paper is that we may discriminate the primary cost variables in the shipping market and the dependence of other variables of this market, by the formulation of Stochastic Differential Equations.These SDE imply the valuation of European options written on the primary variables.

a
denotes the transport costs per unit of cargo turnover, S denotes the transport costs per year and m Q denotes the cargo turnover per year.

(
S V are stochastic, namely they are subject to change during the service time-period[ ] 0,T τ ∈, due to a variety of unknown factors.We suppose that each of these variables are subject to change, according to an Itô process across the service-time period: a certain time-moment during the time-period [ ] 0,T .Also, are usual 1-dimensional independent Brownian motions on  , modelling the essential factors of uncertainty.If the models for the processes [ ] are captured, by the differential form we have above we take: Proposition 1.The Stochastic Differential Equation for , s of the service-time having a strike-price 1 K .The payoff of the second option is ( ), 1

 1 TB
denotes the filtration of the last Brownian motion * B .− is the discount factor with respect to the time-period T.On the other hand, for the valuation of the call-option

B
− is the discount factor with respect to the time-period T .