Stochastic Oil Price Models: Comparison and Impact

Stochastic income statement planning as a basis for risk assessment in the context of emissions trading

“…In the past, numerous empirical tests have been conducted to validate the suitability of the mean reversion process for modelling the oil price as well as to compare it to other stochastic processes (see e.g. Pindyck and Rubinfeld, 1991;Bessembinder et al, 1995;Pilipovic, 1998;Pindyck, 1999;Al-Harthy, 2007). The results point to the fact that the mean reversion process is well suited for this purpose, and certainly is better than the random walk process.…”

Linear solution schemes for Mean-SemiVariance Project portfolio selection problems: An application in the oil and gas industry

“…, 9]. It should be emphasized that, according to Sira [33], the uncertain production levels and the oil prices account for 80% of the NPV's volatility in a typical petroleum project (for literature on forecasting petroleum prices, see [1]). We use Monte Carlo simulation to model the uncertainties, considering a variance reduction technique known as common random numbers [cf., 20] to ensure that the same realizations for the key underlying random variable, namely the WTI price, were used to calculate the NPV for all projects.…”

Uncertainty Quantification of an Asset Evaluation for an Oilfield Property Incorporating Response-Surface Monte-Carlo Simulation with Stochastic Oil Price Models

“…GBM assumes that price changes from one time to the next are independent of each other and that at any point in time, the probability distribution for price is log-normal with its variance increasing as time passes (Al-Harthy, 2007;Begg and Smit, 2007).…”

“…The distribution of P -could be obtain from various projections (EIA, 2012) while η assumes between 0.09 and 0.25 from the literatures (Al-Harthy, 2007;Begg and Smit, 2007). In the case of MRJ, it is necessary to set the jump size (dq) and the jump Figure 1.…”

“…Begg and Smit (2007) implemented stochastic price models and investigated the impact of model choice and the parameter uncertainty for a typical development decision. However, the selection of suitable price models has been a highly controversial subject (Laughton, 2003;Pelet, 2003;Al-Harthy, 2007;Begg and Smit, 2007;Zhou and Yan, 2010).…”