Modeling Crude Oil Price Dynamics: Investigation of Jump and Volatility Using Stochastic Volatility Models (Case study: WTI crude oil prices in 2020 and 2021)
Due to the strategic role of volatility and instability of crude oil prices and their effects on all countries of the world, different methods of modeling and forecasting are necessary. Over the past two decades, an extensive literature has emerged on various approaches to empirically modeling volat...
| Main Authors: | , |
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| Format: | Article |
| Language: | fas |
| Published: |
Allameh Tabataba'i University Press
2020-12-01
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| Series: | Pizhūhishnāmah-i Iqtiṣād-i Inirzhī-i Īrān |
| Subjects: | |
| Online Access: | https://jiee.atu.ac.ir/article_14089_febe6f0a6fcb13f616c41fee5023a9cf.pdf |
| Summary: | Due to the strategic role of volatility and instability of crude oil prices and their effects on all countries of the world, different methods of modeling and forecasting are necessary. Over the past two decades, an extensive literature has emerged on various approaches to empirically modeling volatility in the crude oil market. In this research, WTI crude oil price volatility modeling, which is one of the most important types of crude oil in the market of this strategic commodity, is examined with six flexible stochastic volatility (SV) models. Then the experimental performance of these models is compared with each other using Bayesian methods. The findings of this study show that adding one jump in efficiency and leverage effect to the stochastic volatility (SVLJ) model greatly improves its performance compared to other models. According to the findings of this model, the stability of volatility in the WTI market is very high and on average one jump occurs in this market every year. However, this model shows that in 2020, two jumps in WTI returns occurred in April and May, which is a unique event. In addition, the correlation between the return jump component and the volatility jump (Merton correlation jump) is not confirmed in the WTI data. Also, due to the negative leverage effect, negative shocks have stronger volatility effects than positive shocks in the crude oil market. |
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| ISSN: | 2423-5954 2476-6437 |