Abstract

Initially, this paper presents a methodology for analysis of investment in a tanker ship, based on Monte Carlo simulation of auto-correlated series of time-charter rates and prices of new building and second hand ships. Subsequently, a real options analysis is introduced, considering the possibility of project abandonment. The method is employed for evaluation of the investment in a suezmax tanker. The results indicate that the investment analysis outcome is significantly sensitive to the consideration of the managerial flexibility to project abandonment. Finally, the paper discusses the effect of the decision maker’s risk attitude on the abandonment option value. Key words: Shipping investment appraisal, real options, risk attitude.

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