Humps in the volatility structure of the crude oil futures market: New evidence

Chiarella, C; Kang, B; Nikitopoulos, CS; TÔ, TD

Humps in the volatility structure of the crude oil futures market: New evidence

Chiarella, C Kang, B Nikitopoulos, CS

TÔ, TD

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Publication Type:: Journal Article
Citation:: Energy Economics, 2013, 40 pp. 989 - 1000
Issue Date:: 2013-11-01

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Field	Value	Language
dc.contributor.author	Chiarella, C	en_US
dc.contributor.author	Kang, B	en_US
dc.contributor.author	Nikitopoulos, CS https://orcid.org/0000-0002-5879-3731	en_US
dc.contributor.author	TÔ, TD	en_US
dc.date.issued	2013-11-01	en_US
dc.identifier.citation	Energy Economics, 2013, 40 pp. 989 - 1000	en_US
dc.identifier.issn	0140-9883	en_US
dc.identifier.uri	http://hdl.handle.net/10453/27705
dc.description.abstract	This paper analyses the volatility structure of commodity derivatives markets. The model encompasses hump-shaped, unspanned stochastic volatility, which entails a finite-dimensional affine model for the commodity futures curve and quasi-analytical prices for options on commodity futures. Using an extensive database of crude oil futures and futures options spanning 21. years, we find the presence of hump-shaped, partially spanned stochastic volatility in the crude oil market. The hump shaped feature is more pronounced when the market is more volatile, and delivers better pricing as well as hedging performance under various dynamic factor hedging schemes. © 2013 Elsevier B.V.	en_US
dc.relation	http://purl.org/au-research/grants/arc/DP1095177
dc.relation.ispartof	Energy Economics	en_US
dc.relation.isbasedon	10.1016/j.eneco.2013.05.019	en_US
dc.subject.classification	Energy	en_US
dc.title	Humps in the volatility structure of the crude oil futures market: New evidence	en_US
dc.type	Journal Article
utslib.citation.volume	40	en_US
utslib.for	1402 Applied Economics	en_US
utslib.for	0906 Electrical and Electronic Engineering	en_US
utslib.for	0913 Mechanical Engineering	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
pubs.organisational-group	/University of Technology Sydney/Faculty of Business/Finance Discipline
pubs.organisational-group	/University of Technology Sydney/Strength - QFRC - Quantitative Finance Research Centre
utslib.copyright.status	closed_access
pubs.publication-status	Published	en_US
pubs.volume	40	en_US

Abstract:

This paper analyses the volatility structure of commodity derivatives markets. The model encompasses hump-shaped, unspanned stochastic volatility, which entails a finite-dimensional affine model for the commodity futures curve and quasi-analytical prices for options on commodity futures. Using an extensive database of crude oil futures and futures options spanning 21. years, we find the presence of hump-shaped, partially spanned stochastic volatility in the crude oil market. The hump shaped feature is more pronounced when the market is more volatile, and delivers better pricing as well as hedging performance under various dynamic factor hedging schemes. © 2013 Elsevier B.V.

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http://hdl.handle.net/10453/27705