Optimal investment timing in the dry bulk shipping sector

A Critical Review of the Literature on Firm-Level Theories on Ship Investment

“…As a alternative to the static DCF method, the dynamic Real Option Analysis (ROA) method was introduced by Dixit and Pindyck (1994) and is widely applied in the shipping industry (Bendall and Stent 2005;Bendall and Stent 2007;Dikos 2008;Dikos and Marcus 2003;Dixit and Pindyck 1994;Gkochari 2015). The ROA is treated as an alternative method to manage capital budgeting process under uncertainty and irreversibility with additional options which can be exchanged with low-risk income streams associated with one strategy with that of another strategy (Bendall and Stent 2007).…”

“…Furthermore, this study has a guidance role to advice market participant with an alternative investment decision tool; the price-earnings ratio that reflects the relative degree of over or undervaluation in asset prices. Gkochari (2015) had also recently studied the investment timing in dry bulk shipping market by applying the combined methods of option pricing (Real Option Analysis) and game theory, called the combination as option games approach which has been initially introduced in this paper. The extended model can be accepted as an adaption of Real Option Analysis (Dixit and Pindyck 1994) into dry bulk shipping market.…”

Investment into container shipping capacity: A real options approach in oligopolistic competition

“…Hence, the value of the option to wait in a real options framework decreases when there are more competitors in the model. Gkochari (2015) estimates the competitive dynamic equilibrium in the dry bulk shipping market on the basis of the Grenadier (2002) model and finds that a reduction of order lead time reduces the investment trigger value. Aguerrevere (2003) extends the aforementioned model of irreversible investment (Grenadier, 2002) by introducing a utilization factor and allowing firms to handle their usage of the assets in a flexible way, i.e., units of capacity can be shut down at no cost.…”

“…Continuous-time investment models have been developed in the bulk shipping context by Goncalves (1992) and Gkochari (2015). The approach taken by Gkochari (2015) builds on Baldursson (1998), Grenadier (2002), and Leahy (1993), uses the real options approach to investment under uncertainty and has been used to prove the approach's validity for bulk shipping.…”

“…The approach taken by Gkochari (2015) builds on Baldursson (1998), Grenadier (2002), and Leahy (1993), uses the real options approach to investment under uncertainty and has been used to prove the approach's validity for bulk shipping. The disadvantage of the continuous-time approach is that in order to retain a closed-form investment trigger solution, the number of extensions and considerations of specific shipping industry characteristics is limited.…”