Price dynamics in the market for Liquid Petroleum Gas transport

The purpose of this paper is to investigate the dynamics of the spot freight rate in the Liquid Petroleum Gas (LPG) shipping market. The spot freight rate process is nonparametrically specified so that the model allows for maximal flexibility in fitting the data. The model is estimated using data for the Very Large Gas Carrier (VLGC) sector and the estimation results are compared to those of crude oil tankers available in the literature. The empirical results suggest that the LPG spot freight rate can be appropriately described by a simple linear stochastic model and does not exhibit the non-linearity found in other bulk shipping sectors.