scholarly journals Dynamic Stochastic Factors, Risk Management and the Energy Futures

2017 ◽  
Vol 10 (9) ◽  
pp. 50 ◽  
Author(s):  
Zi-Yi Guo ◽  
Yangxiaoteng Luo
Keyword(s):  
Risk Management ◽  
Crude Oil ◽  
Goodness Of Fit ◽  
Risk Measures ◽  
Futures Contracts ◽  
Oil Futures ◽  
Energy Futures ◽  
Crude Oil Prices ◽  
Dynamic Stochastic ◽  
Energy Products

The world crude oil prices have dropped dramatically, and consequently the oil market has become very volatile and risky in the last several years. Since energy markets play very important roles in the international economy and have led several global economic crises, risk management of energy products prices becomes very important for both academicians and market participants. Schwartz and Smith’s model (2000) is applied to calculate risk measures of Brent oil futures contracts and light sweet crude oil (WTI) futures contracts. The model includes a long-term factor and a short-term factor. We show that the two factors explain the Samuelson effect well and the model present well goodness of fit. Our back testing results demonstrate that the models provide satisfactory risk measures for listed crude oil futures contracts.

A market-augmented model for SIMEX Brent crude oil futures contracts

2000 ◽  
Vol 10 (5) ◽  
pp. 543-552 ◽  
Author(s):  
John M. Sequeira ◽  
Michael McAleer
Keyword(s):  
Crude Oil ◽  
Futures Contracts ◽  
Oil Futures ◽  
Crude Oil Futures

World Leading Commercial Banks in Crude Oil Derivatives Market

2015 ◽  
pp. 69-79
Author(s):  
A. Maslennikov
Keyword(s):  
European Union ◽  
Crude Oil ◽  
Commercial Banks ◽  
Global Market ◽  
Futures Contracts ◽  
Oil Futures ◽  
Oil Derivatives ◽  
The Usa ◽  
Crude Oil Futures ◽  
Commodity Derivatives

The article examines recent developments in the global market for crude oil futures contracts. Amid persistently high trading volume of futures contracts for Brent and WTI global oil benchmarks structure of the market has recently changed profoundly. Share of non-commercial investors who are not directly linked to physical oil operations and are often considered speculators in the trade turnover of futures contracts for WTI at the NYMEX exchange has exceeded 50%. Financial investors play a prominent role in price discovery process for crude oil. However, world leading commercial banks that used to be the major participants in crude oil futures market and were also actively engaged into physical oil trading operations presently are forced to adjust their strategies responding to the regulatory reforms unleashed in the USA and European Union after the global financial crisis of 2008/2009. Provisions of Dodd-Frank Act in the USA and similar regulations in the European Union member countries aim to limit banks’ involvement in commodity derivatives market exclusively to hedging activities referred to swap transactions between banks and their clients. New tighter regulation substantially increases costs of commodity derivatives’ business for commercial banks. Also, the current US legislation prohibits banks from proprietary trading with derivatives instruments. These legislative innovations could substantially reduce banks’ profits. The largest global commercial banks have already reduced their physical commodity trading activities. The author concludes that while it is still unclear how significant the retreat of banks from crude oil derivatives market will be, the established mechanism of oil price setting is unlikely to change dramatically as new players from the financial sector are entering the market, replacing commercial banks.

REGIME-SWITCHED VOLATILITY OF BRENT CRUDE OIL FUTURES WITH MARKOV-SWITCHING ARCH MODEL

2009 ◽  
Vol 12 (02) ◽  
pp. 113-124
Author(s):  
TIEN-YU CHIU ◽  
SHWU-JANE SHIEH
Keyword(s):  
Crude Oil ◽  
Goodness Of Fit ◽  
Terrorist Attack ◽  
Markov Switching ◽  
Persian Gulf War ◽  
Arch Model ◽  
Oil Futures ◽  
Forecast Performance ◽  
High Volatility ◽  
Crude Oil Futures

This paper investigates the volatility process of the Brent crude oil futures markets using Markov-switching ARCH (SWARCH) model. The SWARCH model allows the conditional disturbances to change as time passes and even to switch in different regimes. The empirical evidence shows that the SWARCH (3,3) model performs the best goodness of fit and the best forecast performance among different fitting models. The estimation of smoothing probabilities of data under different regimes facilitates to capture the characteristics of the data, and the high-volatility regime is associated with some extraordinary events, such as the 1990's Persian Gulf War, the 1997's Asia Financial Crisis, and the 2001's 911 terrorist attack.

scholarly journals Forecasting crude oil futures prices using global macroeconomic news sentiment

2019 ◽  
Vol 31 (2) ◽  
pp. 191-215 ◽  
Author(s):  
Zryan A Sadik ◽  
Paresh M Date ◽  
Gautam Mitra
Keyword(s):  
Crude Oil ◽  
Price Volatility ◽  
Futures Contracts ◽  
Model Structure ◽  
Futures Prices ◽  
Macroeconomic News ◽  
Oil Futures ◽  
Crude Oil Futures ◽  
News Sentiment ◽  
The Impact

Abstract We propose a method of incorporating macroeconomic news into a predictive model for forecasting prices of crude oil futures contracts. Since these futures contracts are more liquid than the underlying commodity itself, accurate forecasting of their prices is of great value to multiple categories of market participants. We utilize the Kalman filtering framework for forecasting arbitrage-free (futures) prices and assume that the volatility of oil (futures) price is influenced by macroeconomic news. The impact of quantified news sentiment on the price volatility is modelled through a parametrized, non-linear functional map. This approach is motivated by the successful use of a similar model structure in our earlier work, for predicting individual stock volatility using stock-specific news. We claim the proposed model structure for incorporating macroeconomic news together with historical (market) data is novel and improves the accuracy of price prediction quite significantly. We report results of extensive numerical experiments which justify our claim.

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