Shipping Derivatives & Forward Freight Agreements (FFAs)

SPECIFIC AREAS COVERED

Module 1: Introduction to Financial Derivatives & Risk Management

Introduction to the Course

• Overview of the seminar and key learning objectives
• Fundamental concepts of risk management in shipping
• Understanding the risk-return relationship and key financial risks
• Overview of financial markets and derivative products

Introduction to Derivatives: Futures & Forwards

• Types of derivative instruments
• Time value of money principles
• Forward & future contracts: key concepts and mechanics
• Mark-to-market valuation of futures contracts
• Role and function of clearing houses

Advanced Futures & Forwards Concepts

• Categories and series of futures contracts
• Understanding future contract pricing and basis
• Cash vs. physical settlement
• Futures hedging strategies and practical examples
• Key differences between futures and forward contracts

Option Contracts

• Introduction to options and their applications
• Options payoffs and pricing fundamentals
• Key factors affecting option prices
• Put-call parity and its significance
• Black-Scholes pricing model and implied volatility
• Implied volatility smile, term structure, and model limitations
• Option Greeks and their impact on pricing

Module 2: Shipping Derivatives & Forward Freight Agreements (FFAs)

Introduction to Shipping Indices

• Overview of the shipping industry and freight contract types
• Cost structures under different contract types
• Formation of spot freight rates and time charter equivalent (TCE)
• Shipping indices and their role in derivatives trading
• Introduction to the Baltic Exchange and its role in the market
• Key shipping indices and tradeable derivative routes

The Theory of Shipping Derivatives & FFAs

• Understanding shipping derivatives and Forward Freight Agreements (FFAs)
• Key uses of FFAs in risk management and trading
• How FFA trades are executed and settled
• Baltic Forward Assessments and mark-to-market valuation of FFAs
• FFA settlement conventions and pricing quotations
• Understanding FFA forward curves and factors influencing pricing
• Liquidity considerations and regulatory aspects of the FFA market
• Advantages and challenges of using FFAs in shipping

Practical Applications of FFAs in Shipping

• Hedging vs. speculative trading strategies using FFAs
• Case studies:
  • Simple FFA sell trade
  • Tanker hedging strategies
  • Hedging Panamax and trip charter routes with FFAs
  • Managing a series of voyage risks with FFAs
  • Time charter hedging techniques
• Overview of freight option contracts and liquidity considerations
• Introduction to Asian options and pricing formulas
• Freight options trading strategies and real-world examples
• Freight options quotation and technical aspects

Conclusions & Special Topics

• Interpreting FFA forward curves and their significance
• Importance of constant maturity curves in freight rate analysis
• Selection of appropriate hedging instruments
• Tanker hedge ratio calculation methodologies
• Freight rate statistics and risk management best practices