Risk control in maritime shipping investments

Jørgen Skålnes; Kjetil Fagerholt; Giovanni Pantuso; Xin Wang

doi:10.1016/j.omega.2019.07.003

Risk control in maritime shipping investments

Jørgen Skålnes, Kjetil Fagerholt^*, Giovanni Pantuso, Xin Wang

^*Corresponding author for this work

Department of Mathematical Sciences

1 Citation (Scopus)

Abstract

In this paper we extend the state-of-the-art stochastic programming models for the Maritime Fleet Renewal Problem (MFRP) to explicitly limit the risk of insolvency due to negative cash flows when making maritime shipping investments. This is achieved by modeling the payment of ships in a number of periodical installments rather than in a lump sum paid upfront, representing more closely the actual cash flows for a shipping company. Based on this, we propose two alternative risk control measures, where the first imposes that the cash flow in each time period is always higher than a desired threshold, while the second limits the Conditional Value-at-Risk. We test the two models on realistic test instances based on data from a shipping company. The computational study demonstrates how the two models can be used to assess the trade-offs between risk of insolvency and expected profits in the MFRP.

Original language	English
Journal	Omega (United Kingdom)
Number of pages	15
ISSN	0305-0483
DOIs	https://doi.org/10.1016/j.omega.2019.07.003
Publication status	Published - Oct 2020

Keywords

Conditional value-at-risk
Maritime fleet renewal
Maritime transportation
Risk control
Stochastic programming

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10.1016/j.omega.2019.07.003

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title = "Risk control in maritime shipping investments",

abstract = "In this paper we extend the state-of-the-art stochastic programming models for the Maritime Fleet Renewal Problem (MFRP) to explicitly limit the risk of insolvency due to negative cash flows when making maritime shipping investments. This is achieved by modeling the payment of ships in a number of periodical installments rather than in a lump sum paid upfront, representing more closely the actual cash flows for a shipping company. Based on this, we propose two alternative risk control measures, where the first imposes that the cash flow in each time period is always higher than a desired threshold, while the second limits the Conditional Value-at-Risk. We test the two models on realistic test instances based on data from a shipping company. The computational study demonstrates how the two models can be used to assess the trade-offs between risk of insolvency and expected profits in the MFRP.",

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T1 - Risk control in maritime shipping investments

AU - Skålnes, Jørgen

AU - Fagerholt, Kjetil

AU - Pantuso, Giovanni

AU - Wang, Xin

PY - 2020/10

Y1 - 2020/10

N2 - In this paper we extend the state-of-the-art stochastic programming models for the Maritime Fleet Renewal Problem (MFRP) to explicitly limit the risk of insolvency due to negative cash flows when making maritime shipping investments. This is achieved by modeling the payment of ships in a number of periodical installments rather than in a lump sum paid upfront, representing more closely the actual cash flows for a shipping company. Based on this, we propose two alternative risk control measures, where the first imposes that the cash flow in each time period is always higher than a desired threshold, while the second limits the Conditional Value-at-Risk. We test the two models on realistic test instances based on data from a shipping company. The computational study demonstrates how the two models can be used to assess the trade-offs between risk of insolvency and expected profits in the MFRP.

AB - In this paper we extend the state-of-the-art stochastic programming models for the Maritime Fleet Renewal Problem (MFRP) to explicitly limit the risk of insolvency due to negative cash flows when making maritime shipping investments. This is achieved by modeling the payment of ships in a number of periodical installments rather than in a lump sum paid upfront, representing more closely the actual cash flows for a shipping company. Based on this, we propose two alternative risk control measures, where the first imposes that the cash flow in each time period is always higher than a desired threshold, while the second limits the Conditional Value-at-Risk. We test the two models on realistic test instances based on data from a shipping company. The computational study demonstrates how the two models can be used to assess the trade-offs between risk of insolvency and expected profits in the MFRP.

KW - Conditional value-at-risk

KW - Maritime fleet renewal

KW - Maritime transportation

KW - Risk control

KW - Stochastic programming

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DO - 10.1016/j.omega.2019.07.003

M3 - Journal article

AN - SCOPUS:85068829846

SN - 0305-0483

JO - Omega (United Kingdom)

JF - Omega (United Kingdom)

ER -

Risk control in maritime shipping investments

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