Dry Bulk Time Charter Rates Joint Return Distribution Modeling: Copula-Approach

Abstract

The paper is the first to the knowledge of the authors to apply copula models to reconstructing joint distribution of time charter rates for dry bulk ship. Based on the Clarksons dataset for the last 20 years it is claimed that Gumbel copula is enough to perform the mentioned objective. To arrive at the conclusion the homogenous dataset in terms of copula structural shifts’ absence is used; a system of criteria for copula selection based on goodness -of-forecast criteria is implemented. The evidence suggests dry bulk time charter rates weekly returns exhibit symmetric distribution.As an auxiliary output stands for the result of copula fit accounting for time dynamics and not. For the purpose of conservative analysis (i.e. risk-management) approach disregarding time-dynamics should be preferred as yielding the least number of value-at-risk breaches. From the risk budgeting perspective non-conservative approach (accounting for time dynamics) might be preferred as reflecting the rapidly changing value-at-risk.