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Risk Premia In Crude Oil Futures Prices
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Book Synopsis Risk Premia in Crude Oil Futures Prices by : James Douglas Hamilton
Download or read book Risk Premia in Crude Oil Futures Prices written by James Douglas Hamilton and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: If commercial producers or financial investors use futures contracts to hedge against commodity price risk, the arbitrageurs who take the other side of the contracts may receive compensation for their assumption of nondiversifiable risk in the form of positive expected returns from their positions. We show that this interaction can produce an affine factor structure to commodity futures prices, and develop new algorithms for estimation of such models using unbalanced data sets in which the duration of observed contracts changes with each observation. We document significant changes in oil futures risk premia since 2005, with the compensation to the long position smaller on average in more recent data. This observation is consistent with the claim that index-fund investing has become more important relative to commerical hedging in determining the structure of crude oil futures risk premia over time.
Book Synopsis What Explains Risk Premia in Crude Oil Futures? by : Marko Melolinna
Download or read book What Explains Risk Premia in Crude Oil Futures? written by Marko Melolinna and published by . This book was released on 2011 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Risk Premium on Crude Oil Futures Prices by : Hongbo Liao
Download or read book Risk Premium on Crude Oil Futures Prices written by Hongbo Liao and published by . This book was released on 2013 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis On the Tail Risk Premium in the Oil Market by : Reinhard Ellwanger
Download or read book On the Tail Risk Premium in the Oil Market written by Reinhard Ellwanger and published by . This book was released on 2017 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis The Relative Pricing of WTI and Brent Crude Oil Futures by : Xin (Shane) Gao
Download or read book The Relative Pricing of WTI and Brent Crude Oil Futures written by Xin (Shane) Gao and published by . This book was released on 2022 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the spread of Brent-WTI futures prices using a no-arbitrage term structure model with one common and two latent idiosyncratic risk factors. We document more negative risk premia for WTI than for Brent, and the differences are more pronounced at longer maturities. The expectation of future spot price dominates the risk premium in determining the term structure of Brent-WTI futures spread, especially at short maturities. The common risk premia in both markets are negative and similar, while their corresponding idiosyncratic risk premia have opposite signs. The common risk prices of WTI and Brent are generally related to the US crude commercial stock, inflation, economic uncertainty, and hedging pressure; however, idiosyncratic risk prices are more related to their corresponding local production, short rate, and the term structure factors. The variance decomposition indicates that the idiosyncratic factors account for a considerable part at longer forecast horizons in both markets.
Book Synopsis Model Dynamics and Risk Premia in the Short Term Market for Crude Oil by : Karl Larsson
Download or read book Model Dynamics and Risk Premia in the Short Term Market for Crude Oil written by Karl Larsson and published by . This book was released on 2014 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper investigates model dynamics and risk premia in the short term market for crude oil futures. Stochastic volatility models, with and without jumps, are estimated using data on both futures and option prices. As an economic application we apply the estimated models to the pricing of crude oil variance swaps and an evaluation of the associated variance risk premium. The empirical results point to a positive return risk premium attached to diffusive stochastic volatility while there is not strong evidence of jump risk being priced in the market. Negative volatility and variance risk premia stand out as a robust and significant feature of the data. Jumps play a minor role for representing data and the jump risk component in both variance swaps and variance risk premia is small. Finally, a non-affine model that allows for level dependent volatility of volatility is found to have the best fit to data.
Book Synopsis A General Approach to Recovering Market Expectations from Futures Prices with an Application to Crude Oil by : Christiane Baumeister
Download or read book A General Approach to Recovering Market Expectations from Futures Prices with an Application to Crude Oil written by Christiane Baumeister and published by . This book was released on 2016 with total page 10 pages. Available in PDF, EPUB and Kindle. Book excerpt: Futures markets are a potentially valuable source of information about price expectations. Exploiting this information has proved difficult in practice, because time-varying risk premia often render the futures price a poor measure of the market expectation of the price of the underlying asset. Although this expectation in principle may be recovered by adjusting the futures price by the estimated risk premium, a common problem is that there are as many measures of the market expectation as there are estimates of the risk premium. We propose a general solution to this problem that allows us to select the most accurate estimate of the expectation for any set of risk premium estimates. We illustrate this approach by solving the long-standing problem of how to estimate the market expectation of the price of crude oil. We provide a new measure of oil price expectations that is substantially more accurate than the alternatives and more economically plausible. Our analysis has implications for the estimation of economic models of energy-intensive durables, for oil price forecasting and for the measurement of oil price shocks.
Book Synopsis Market Attitudes Under Uncertainty by : Qixiang Gao
Download or read book Market Attitudes Under Uncertainty written by Qixiang Gao and published by . This book was released on 2021 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the predictability of volatility risk premia in WTI crude oil futures markets under an uncertain environment. I find that a nontrivial fraction of the magnitude and the direction of the volatility risk premium can be explained by the unforeseeable fluctuations in macroeconomic and financial indicators. Although the previous literature has shown that most of the risk factors (for example, book-to-market ratio and momentum) used in capital asset pricing models are not responsible for variations in the volatility risk premium, I find evidence that the effects of some of the indicators like open interest momentum and growth rate of market interest could be enhanced when taking uncertainty into consideration. The effects of market participants' behaviors and risk attitudes are strongly correlated with uncertainty, and the cost of hedging against futures price variance will increase if uncertainty in the macroeconomic environment is high.
Book Synopsis Risk-adjusted Forecasts of Oil Prices by : Patrizio Pagano
Download or read book Risk-adjusted Forecasts of Oil Prices written by Patrizio Pagano and published by . This book was released on 2006 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Time Varying Risk Premia in Futures Markets by : Mr.Manmohan S. Kumar
Download or read book Time Varying Risk Premia in Futures Markets written by Mr.Manmohan S. Kumar and published by International Monetary Fund. This book was released on 1990-12-01 with total page 32 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper undertakes an econometric investigation into the presence of risk premium in commodity futures markets. The statistical tests are derived from a formal model of asset pricing and are applied to futures prices in a variety of commodity markets. The results suggest that for several commodities there is evidence of a time varying risk premium, particularly in futures contracts maturing six months ahead. The implications of the study for the efficiency of the futures markets and the costs of using these markets for hedging are also noted.
Book Synopsis Risk Premia and Price Volatility in Futures Markets by : G. S. Maddala
Download or read book Risk Premia and Price Volatility in Futures Markets written by G. S. Maddala and published by . This book was released on 1990 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Risk Premia in Heating Oil Futures by : Peter Albert Abken
Download or read book Risk Premia in Heating Oil Futures written by Peter Albert Abken and published by . This book was released on 1987 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Commodity Variance Risk Premia and Expected Futures Returns by : Sang Baum Kang
Download or read book Commodity Variance Risk Premia and Expected Futures Returns written by Sang Baum Kang and published by . This book was released on 2015 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop an extended mean-variance model to investigate the relationship between variance risk premia (VRP) and expected futures returns in the commodity market. In the presence of stochastic variance, commodity producers trade both futures and options to hedge their exposure to commodity price and volatility risk; speculators provide liquidity and ask for risk premia. This model reveals a negative relationship between VRP and expected futures returns. Empirically, we measure VRP using options and high-frequency futures data in the crude oil market. Consistent with our model, we find that VRP negatively predict futures returns even after controlling for other predictor variables.
Book Synopsis Interpreting the Oil Risk Premium by : Daniele Valenti
Download or read book Interpreting the Oil Risk Premium written by Daniele Valenti and published by . This book was released on with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Book Synopsis Cme Vulnerability, The: The Impact Of Negative Oil Futures Trading by : George Xianzhi Yuan
Download or read book Cme Vulnerability, The: The Impact Of Negative Oil Futures Trading written by George Xianzhi Yuan and published by World Scientific. This book was released on 2020-10-23 with total page 274 pages. Available in PDF, EPUB and Kindle. Book excerpt: In 2020, the global lockdowns caused by the COVID-19, or coronavirus, pandemic had resulted in a sharp drop in demand for crude oil. This impact was so severe that on April 8, 2020, a proposal to update the Chicago Mercantile Exchange Holdings Inc. (CME) trading rule to permit negative prices was applied to CME's WTI Oil futures contracts; this led to a novel phenomenon in which the closing clearing price of WTI Oil May future was $-37.63/barrel based on fewer than 400 contracts' trading volume in the last three minutes, reflecting less than 0.2% of the total trading contracts volume on April 20, 2020. This occurrence of negative closing clearing price for CME's WTI Oil futures trading, cannot be explained simply by just the principle of supply and demand; instead, it highlights vulnerabilities caused by CME's allowance of negative price trading (based on its trading platform), a decision which brings potential and fundamental challenges to the global financial system.This event challenges not just our basic concepts of 'value' and trading 'price' of commodities and goods that underline our understanding of the framework for the invisible hand and general equilibrium theory in economics established by a few generations of scholars since Adam Smith in 1776 for market economies, but also have wider implications on the fundamentals that underpin our ideas of value and labor in the organization, activity, and behavior of civilizations and individual liberties.The scope of this book is limited to covering the impact of the negative oil futures derivatives' trading between April 20 and 21, 2020. This book focuses on exploring the issues, challenges, and possible impacts on global financial markets due to the negative clearing prices of WTI Oil futures contracts and related problems from different perspectives. Topics covered include the responsibilities and liabilities of the CME; critique to the fundamental theory of economics and the modern understanding of value and labor; and challenges to the global financial systems and businesses and introduction to new methods of application.
Book Synopsis A General Approach to Recovering Market Expectations from Futures Prices with an Application to Crude Oil by :
Download or read book A General Approach to Recovering Market Expectations from Futures Prices with an Application to Crude Oil written by and published by . This book was released on 2016 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Futures markets are a potentially valuable source of information about price expectations. Exploiting this information has proved difficult in practice, because time-varying risk premia often render the futures price a poor measure of the market expectation of the price of the underlying asset. Although this expectation in principle may be recovered by adjusting the futures price by the estimated risk premium, a common problem is that there are as many measures of the market expectation as there are estimates of the risk premium. We propose a general solution to this problem that allows us to select the most accurate estimate of the expectation for any set of risk premium estimates. We illustrate this approach by solving the long-standing problem of how to estimate the market expectation of the price of crude oil. We provide a new measure of oil price expectations that is substantially more accurate than the alternatives and more economically plausible. Our analysis has implications for the estimation of economic models of energy-intensive durables, for oil price forecasting and for the measurement of oil price shocks.
Book Synopsis Two Essays on Crude Oil Futures and Options Markets by : Bingxin Li
Download or read book Two Essays on Crude Oil Futures and Options Markets written by Bingxin Li and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of two essays on crude oil futures and options markets. The first essay investigates whether aggregate risk aversion and risk premiums in the crude oil market co-vary with the level of speculation. Using crude oil futures and option data, I estimate aggregate risk aversion in the crude oil market and find that it is signi ficantly lower after 2002, when speculative activity started to increase. Using speculation index as a state variable, risk premiums implied by the state-dependent risk aversion estimates confi rm the negative correlation between speculative activity and risk premiums, and indicate that risk premiums in the crude oil market are on average lower and more volatile after 2002. These findings suggest that index-fund investors who demand commodity futures for the purpose of portfolio diversi fication are willing to accept lower compensation for their positions. Estimated state-dependent risk premiums have substantial predictive power for subsequent futures returns and outperform commonly used predictors. The second essay exams the economic importance of jumps, jump risk premiums, and dynamic jump intensities in crude oil futures and options markets. Existing pricing models for crude oil options are computationally intensive due to the presence of latent state variables. Using a panel data of crude oil futures and options, I implement a class of computationally e fficient discrete-time jump models. I find that jumps account for about half of the total variance in crude oil futures and options prices, and a substantial part of the risk premiums is due to jumps. Jumps are large and rare events in crude oil futures and options markets. The main role of jumps and jump risk premiums in crude oil futures and options markets is to capture excess kurtosis in the data. These findings suggest that it is critical to include jumps in pricing models for crude oil futures and options, and there is strong evidence in favor of time-varying jump intensities.
