2013
DOI: 10.1111/opec.12007
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An introduction to oil market volatility analysis

Abstract: Modelling and forecasting crude oil price volatility is crucial in many financial and investment applications. The main purpose of this paper is to review and assess the current state of oil market volatility knowledge. It highlights the properties and characteristics of the oil price volatility that models seek to capture, and discuss the different modelling approaches to oil price volatility. Asymmetric response to price change, persistence and mean reversion, structural breaks, and possible market spillover… Show more

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Cited by 18 publications
(8 citation statements)
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“…Oil-price volatility impacts the hedging and contracting of projects whose cash flows are influenced by the expected price of the commodity. Long-term uncertainty in future oil prices can alter the incentives to develop new fields in producing countries, and can also bring projects to a sudden halt if prices drop suddenly (Matar et al, 2013). Research in this area finds few promising avenues for forecasting oil prices, leading to on-going project uncertainty in the operational procurement and project management environment.…”
Section: Introductionmentioning
confidence: 99%
“…Oil-price volatility impacts the hedging and contracting of projects whose cash flows are influenced by the expected price of the commodity. Long-term uncertainty in future oil prices can alter the incentives to develop new fields in producing countries, and can also bring projects to a sudden halt if prices drop suddenly (Matar et al, 2013). Research in this area finds few promising avenues for forecasting oil prices, leading to on-going project uncertainty in the operational procurement and project management environment.…”
Section: Introductionmentioning
confidence: 99%
“…We define daily returns as logarithmic differences of price indices: where R t is the Brent oil price log return; P t the price of oil in period t and P t −1 the price of oil in ( t −1). Even though the Brent crude oil produced in the North Sea and the WTI are highly correlated; however, they report small spreads as a result of differences in the production base, transportation/delivery costs, oil quality and trading times (Matar et al , 2013). We use the log returns of the Europe Brent as the dependent variable because they are more prone to fluctuate subject to chaos and geopolitical situation in the Middle East and North Africa compared to the WTI produced and traded mostly in the USA (Zhang and Zhang, 2015).…”
Section: Methodsmentioning
confidence: 99%
“…As a proxy of economic policy uncertainty, we utilized the EPU index in this study, which was compiled by three economists: Baker, Bloom, and Davis [45]. This US index includes three components with different weights.…”
Section: Data Descriptionmentioning
confidence: 99%
“…As per the international crude oil trading practices, the benchmark is the international energy market, which mainly includes WTI oil, Brent crude oil, and Dubai crude oil [45]. Among them, the price of WTI is the most important price benchmark in the world.…”
Section: Data Descriptionmentioning
confidence: 99%