Geometric Brownian Motion and structural breaks in oil prices: A quantitative analysis

Postali, Fernando Antônio Slaibe; Picchetti, Paulo

doi:10.1016/j.eneco.2006.02.011

Cited by 134 publications

(66 citation statements)

References 20 publications

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“…In contrast to commodity spot prices, Irwin et al (1996) find futures prices not to be well described by a pure mean reversion process but rather by a random walk. In line with the findings of Irwin et al (1996), Postali and Picchetti (2006) argue that a geometric Brownian motion, which is a random walk process, is suitable to describe the movement of oil prices because there are very low speeds of mean reversion. 5 On the other hand, Alvarez-Ramirez et al (2002) find significant autocorrelation in Brent crude oil prices, which induces mean reverting behaviour in oil prices.…”

Section: Stylized Facts About Price Movements In Crude Oil Marketsmentioning

confidence: 49%

Informational Efficiency in Futures Markets for Crude Oil

Fritz

2012

SSRN Journal

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Section: Stylized Facts About Price Movements In Crude Oil Marketsmentioning

confidence: 49%

Informational Efficiency in Futures Markets for Crude Oil

Fritz

2012

SSRN Journal

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“…In line with the previous studies, we assume that the price of diesel is stochastic and follow geometric Brownian motion (GBM) [20][21][22]. Dixit and Pindyck [18] present the stochastic price process as…”

Section: Stochastic Prices and Monte Carlo Simulationmentioning

confidence: 98%

A real options approach to renewable electricity generation in the Philippines

Agaton

Karl

2018

Energ Sustain Soc

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Background: The Philippines is making a significant stride to become energy independent by developing more sustainable sources of energy. However, investment in renewable energy is challenged by competitive oil prices, very high investment cost for renewable energy, and high local electricity prices. This paper evaluates the attractiveness of investing in renewable energy sources over continue using oil for electricity generation. Methods: This paper uses the real options approach to analyze how the timing of investment in renewable energy depends on volatility of diesel price, electricity price, and externality for using oil. Results: The result presents a positive net present value for renewable energy investment. Under uncertainty in oil prices, dynamic optimization describes how waiting or delaying investment in renewables incurs loses. Decreasing the local electricity price and incorporating negative externality favor investment in renewable energy over continuing the use of oil for electricity generation.

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“…Postali et al, [2] conclude that average half life of oil price is long enough to allow a good approximation as a geometric Brownian motion. Kaffel and Abid [3] explored the best continuous time stochastic model of crude oil from January 1960 to May 2004 and found that geometric Brownian motion with jumps is the best stochastic process to model the crude oil price compared to the commonly used process which is Ornstein-Uhlenbeck process, inhomogeneous geometric Brownian motion and others.…”

Section: Introductionmentioning

confidence: 99%

Analysis of oil price fluctuations

Noh

Chen

Bahar

et al. 2016

AIP Conference Proceedings

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Abstract. Recently, crude oil price becomes volatile and have been the popular issue to be discussed in every country. Oil price fluctuations have major impact on the overall economy and finally will lead to increase in the inflation rate. It is important to describe these oil price fluctuations mathematically. This study aims to describe the above phenomena using geometric Brownian motion. Two crude oil prices, namely WTI and Brent have been analyzed based on daily oil price data from year 2000 until year 2015. Through the analysis using model assessment and model determination, crude oil price after year 2000 follows geometric Brownian motion process. We conclude that oil price fluctuations follow a geometric Brownian motion process without considering unexpected incidents.

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Geometric Brownian Motion and structural breaks in oil prices: A quantitative analysis

Cited by 134 publications

References 20 publications

Informational Efficiency in Futures Markets for Crude Oil

Informational Efficiency in Futures Markets for Crude Oil

A real options approach to renewable electricity generation in the Philippines

Analysis of oil price fluctuations

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