Assessment of investment decisions in bulk shipping through fuzzy real options analysis

The global shipping market has been depressed and turbulent since 2008. Shipping companies have had to be more cautious with their investments, so as to buck the trend and get through this difficult period. Traditional net present value methods cannot help enterprises make effective investment decisions. Therefore, we employ real options theory—including expansion options, contraction options, deferral options, and abandonment options—to simulate various types of operational adjustment strategies used by investors in the process of ship investment and operations. Triangular fuzzy numbers and the generalized autoregressive conditional heteroscedasticity model are also introduced to describe the uncertainty and volatility of the shipping market. Subsequently, a fuzzy real options binomial tree pricing model is developed to assess the project value of ship investments. Based on the calculations and analysis of an actual ship investment case, the fuzzy real options method is shown to be more suitable for ship investment analysis, fitting more closely the actual market and operating situation.