Ship Investment Timing Based on Option to Defer with Mean Reversion Motion

Abstract:

A mean reversion version of standard entry exit model with stochastic ship value was adopted to study ship investment timing, which can be expressed in terms of Kummer function. The cost and revenue data of Panama containership on Far East to North western Europe lane from 2001 to 2012 was applied for empirical analysis. It shows that recovery and peak stage are suitable for investment. The ship value and investment threshold decrease while risk free rise, which means the investable time extend. The result coincides with containership orders in the market, which is about a half year ahead of the actual containership investment time.

Key words:real option; investment timing; mean reversion motion; Kummer functions