A Theory Approach towards Tradable Rail Freight Option

Table 1

Summary of notations.

Notation	Descriptions
	Option price (unit capacity)
	Option strike price (unit capacity)
	Spot market freight rate (unit capacity) in time t
	Probability of increase
	Probability of drop
	Probability of remain unchanged
	Value of RFO at expiration when increased
	Value of RFO at expiration when dropped
	The advance ratio of
	The decline ratio of
N	The purchase amount of RFO
c	Unit capacity fixed cost
	The execution amount of RFO
	The capacity purchases amount through spot market
	Long-term preparation cost of transportation (unit capacity)
	Short-term preparation cost of transportation (unit capacity)
	Total capacity provided by railway freight transport
	Standard deviation of railway freight market returns
	Market capacity demand
	Probability density function of freight demand
	Risk-free interest rate
	Standard deviation of railway freight market returns
	Railway freight rate volatility