Advances in risk management: optimum investment portfolios in tanker shipping

Ship investments entail significant capital outlays, extended payback periods, and elevated levels of risk. Traditional mean–variance portfolio theory falls short of effectively capturing the pronounced volatility and uncertainty inherent in this investment domain. To develop a better approach to shipping investments, aiming at reducing risk and increasing returns, focusing on tanker shipping, we integrate returns; value at risk (VaR); scale parameter; skewness parameter; and entropy, in a coherent multi-objective investment portfolio optimization model based on stable distributions. Our findings offer several key insights. Both the scale parameter and VaR serve as valuable metrics in assessing investment risk. When both metrics are simultaneously restricted, investment risk is amenable to improved control. Imposing entropy constraints effectively reduces investment concentration and alters expected returns. The skewness parameter exerts a notable influence on expected returns, particularly suiting investors with more aggressive preferences. The model achieves significant risk reduction in VLCC (48%) and Suezmax (37%) investments, but offers limited risk reduction in the case of low-risk, low-return Aframax vessels.