ICM321-Derivatives and Risk Management in Shipping

Module Provider: ICMA Centre
Number of credits: 10 [5 ECTS credits]
Terms in which taught: Spring term module
Non-modular pre-requisites:
Modules excluded:
Current from: 2020/1

Module Convenor: Dr Ilias Visvikis

Email: i.visvikis@reading.ac.uk

Type of module:

Summary module description:

The module provides a grounding in risk management and derivatives products in shipping. It builds upon some of the finance concepts introduced in Term 1 modules and applies those concepts within the shipping industry. Financial risk management is constantly evolving and has become an essential tool within the modern corporation. The cyclical and volatile nature of the shipping business that tends to result in extensive fluctuations in rates and prices associated with shipping operations makes risk management crucially important to shipping companies. As a result, shipping derivatives have been developed in order to more efficiently manage risks, emanating from fluctuations in freight rates, bunker prices, vessel prices, interest rates and foreign exchange rates, amongst others. 


The module’s main aim is to provide a critical understanding on how all main types of shipping derivatives can be applied in the day-to-day practice of risk management in shipping. 

Assessable learning outcomes:

By the end of the module, it is expected that the students will be able to: 

  • Understand the risk-return trade-offs and evaluate the sources of business risks in shipping. 

  • Evaluate all available derivatives products and markets as well as the various underlying assets 

  • Implement different hedging strategies with the use of deriv atives products in shipping 

  • Manage shipping related risk exposures 

  • Develop, appraise and implement shipping related risk management strategies 

  • Price shipping derivatives and estimate optimal hedge ratios 

Additional outcomes:

The student will develop familiarity with the workings of the shipping markets from a risk management perspective and gain experience in designing and implementing hedging and investment (trading) strategies, using shipping derivatives products. The student will learn to take risk management decisions, through a series of practical applications, exercises, a trading simulation and case studies. The seminars will provide students with the opportunity to apply the developed analytical and other generic skills in related market data. 

Outline content:

-Sources of Business Risks in the Shipping Industry? 

Traditional Risk Management Strategies 


-Underlying Freight Assets (Baltic Exchange indices and routes)? 

Derivatives Products and Markets in Shipping 


-Dry-bulk, Tanker and Containership Forward Freight Agreements (FFAs)? 

“Hybrid” FFAs, Freight Futures and Clearing 


-Practical Freight Derivatives Trading Examples? 

Freight Option Trading Strategies 


-Bunker Fuel Price Derivatives? 

Bunker Fuel Trading Simulation 

Foreign Exchange and Interest Rate Derivatives

Brief description of teaching and learning methods:

Lectures will be used for the exposition of theory. Classes will be used to discuss non-assessed problem sets and case studies. The techniques used to achieve the stated module objectives will consist of a combination of active teaching, question-answer sessions, class examinations, assignments and class discussions. 

Contact hours:
  Autumn Spring Summer
Lectures 10
Seminars 5
Guided independent study:      
    Wider reading (independent) 10
    Wider reading (directed) 5
    Exam revision/preparation 10
    Preparation for tutorials 10
    Preparation for seminars 5
    Preparation for performance 5
    Preparation of practical report 10
    Group study tasks 30
Total hours by term 0 100 0
Total hours for module 100

Summative Assessment Methods:
Method Percentage
Written assignment including essay 100

Summative assessment- Examinations:

Summative assessment- Coursework and in-class tests:

Individual assignment. 3,000 words maximum. Assignment is given at the start of the term and its deadline is near the end of the term. 

Formative assessment methods:

Penalties for late submission:

Penalties for late submission on this module are in accordance with the University policy. Please refer to page 5 of the Postgraduate Guide to Assessment for further information: http://www.reading.ac.uk/internal/exams/student/exa-guidePG.aspx 

Assessment requirements for a pass:

A minimum total final mark of 50%. 

Reassessment arrangements:

Reassessment by assignment? 

Additional Costs (specified where applicable):

Last updated: 17 December 2020


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