DUTCH BOOKS AND MARKET MAKING IN FFAS The concept of Dutch books is particularly relevant in the context of market making for Forward Freight Agreements (FFAs). A Dutch book is a set of bets or trades that guarantees a profit regardless of the outcome. In efficient markets, Dutch books should not exist, as they represent arbitrage opportunities


For FFA market makers, avoiding Dutch books is crucial. By using Bayesian inference to continuously update their beliefs about freight rate models, market makers can:


1


Adjust their bid-ask spreads to reflect current market uncertainties


2


Price in new information quickly to avoid being exploited by more informed traders


3


Maintain a balanced book that reflects their updated beliefs about future freight rate movements


By doing so, market makers can reduce the risk of inadvertently creating Dutch book opportunities that could be exploited by savvy traders.


CONCLUSION Bayesian inference provides a robust framework for evaluating and updating freight market models in the face of uncertainty.


By embracing probability distributions rather than point estimates, and by continuously updating beliefs with new evidence, shipping market participants can develop a more nuanced understanding of freight rate dynamics.


Bayesian inference stands out as a powerful tool, allowing us to balance our prior knowledge with new information, leading to more informed and adaptive decision-making strategies in freight trading and risk management.


Anatoly Kazimirov Denmark - CVR: 32081487 (as agent only) E: akazimirov@pangaeals.com M: +45 31 31 34 87


BAYESIAN INFERENCE PROVIDES A ROBUST FRAMEWORK FOR EVALUATING AND UPDATING FREIGHT MARKET MODELS IN THE FACE OF UNCERTAINTY.


13 | ADMISI - The Ghost In The Machine | Q1 Edition 2025


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36  |  Page 37  |  Page 38  |  Page 39  |  Page 40  |  Page 41  |  Page 42  |  Page 43  |  Page 44