On the Tail Risk Premium in the Oil Market PDF Download
Are you looking for read ebook online? Search for your book and save it on your Kindle device, PC, phones or tablets. Download On the Tail Risk Premium in the Oil Market PDF full book. Access full book title On the Tail Risk Premium in the Oil Market by Reinhard Ellwanger. Download full books in PDF and EPUB format.
Author: Reinhard Ellwanger
Publisher:
ISBN:
Category : Petroleum products
Languages : en
Pages : 36
Get Book Here
Book Description
Author: Reinhard Ellwanger
Publisher:
ISBN:
Category : Petroleum products
Languages : en
Pages : 36
Get Book Here
Book Description
Author: Marc H. Vatter
Publisher:
ISBN:
Category :
Languages : en
Pages : 34
Get Book Here
Book Description
The question is examined whether OPEC is in a position to collect a risk premium to effectively insure others against a macroeconomic downturn, which may, in turn, result from a rise in the price of crude oil. Contingent exchange is modeled such that parties whose consumption is elastic with respect to aggregate consumption hedge; they pay risk premia to smooth consumption. Parties whose consumption is inelastic or negatively related to aggregate consumption collect risk premia. OPEC's revenues are estimated, insofar as they are explained by OPEC's cartel pricing, to be strongly negatively related to aggregate consumption. Insofar as they are explained by exogenous macroeconomic changes, they are highly inelastic with respect to the aggregate. Either way, OPEC is in a strong position to collect a risk premium from volatility in the market for crude oil. This may incent it to destabilize the market, which would lower macroeconomic output because of the asymmetric effects of oil prices on the macroeconomy.
Author: Georges Prat
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Get Book Here
Book Description
Using survey-based monthly data over thirty years, we show that oil price expectations for 3- and 12-month horizons are not rational implying that the ex-ante oil risk premium is a more relevant concept for decision making than the widely popular ex-post premium. Using a portfolio choice model framework, we derive each risk premium as a product of the price of risk and the expected volatility of oil return, these two components being time varying and horizon-dependent. A state-space model of risk premiums, where the risk prices are represented as stochastic unobservable components and where expected variances are proxied as weighted averages of past instantaneous variances, is estimated using Kalman filtering. We find that our model adequately represents the ex-ante oil risk premiums dynamics, from which the representative investor appears to be mostly risk seeking at short horizons and mostly risk averse at longer horizons. A state-dependent interpretation of our risk premium patterns shows consistency with the predictions of the prospect theory. We also show that our risk prices are correlated with a number of economic and oil market-related factors, and find that an upward sloped term structure of oil risk premiums prevails in average over the period.
Author: Vineer Bhansali
Publisher: McGraw Hill Professional
ISBN: 0071791760
Category : Business & Economics
Languages : en
Pages : 272
Get Book Here
Book Description
"TAIL RISKS" originate from the failure of mean reversion and the idealized bell curve of asset returns, which assumes that highly probable outcomes occur near the center of the curve and that unlikely occurrences, good and bad, happen rarely, if at all, at either "tail" of the curve. Ever since the global financial crisis, protecting investments against these severe tail events has become a priority for investors and money managers, but it is something Vineer Bhansali and his team at PIMCO have been doing for over a decade. In one of the first comprehensive and rigorous books ever written on tail risk hedging, he lays out a systematic approach to protecting portfolios from, and potentially benefiting from, rare yet severe market outcomes. Tail Risk Hedging is built on the author's practical experience applying macroeconomic forecasting and quantitative modeling techniques across asset markets. Using empirical data and charts, he explains the consequences of diversification failure in tail events and how to manage portfolios when this happens. He provides an easy-to-use, yet rigorous framework for protecting investment portfolios against tail risk and using tail hedging to play offense. Tail Risk Hedging explores how to: Generate profits from volatility and illiquidity during tail-risk events in equity and credit markets Buy attractively priced tail hedges that add value to a portfolio and quantify basis risk Interpret the psychology of investors in option pricing and portfolio construction Customize explicit hedges for retirement investments Hedge risk factors such as duration risk and inflation risk Managing tail risk is today's most significant development in risk management, and this thorough guide helps you access every aspect of it. With the time-tested and mathematically rigorous strategies described here, including pieces of computer code, you get access to insights to help mitigate portfolio losses in significant downturns, create explosive liquidity while unhedged participants are forced to sell, and create more aggressive yet tail-risk-focused portfolios. The book also gives you a unique, higher level view of how tail risk is related to investing in alternatives, and of derivatives such as zerocost collars and variance swaps. Volatility and tail risks are here to stay, and so should your clients' wealth when you use Tail Risk Hedging for managing portfolios. PRAISE FOR TAIL RISK HEDGING: "Managing, mitigating, and even exploiting the risk of bad times are the most important concerns in investments. Bhansali puts tail risk hedging and tail risk management under a microscope--pricing, implementation, and showing how we can fine-tune our risk exposures, which are all crucial ways in how we can better weather our bad times." -- ANDREW ANG, Ann F. Kaplan Professor of Business at Columbia University "This book is critical and accessible reading for fiduciaries, financial consultants and investors interested in both theoretical foundations and practical considerations for how to frame hedging downside risk in portfolios. It is a tremendous resource for anyone involved in asset allocation today." -- CHRISTOPHER C. GECZY, Ph.D., Academic Director, Wharton Wealth Management Initiative and Adj. Associate Professor of Finance, The Wharton School "Bhansali's book demonstrates how tail risk hedging can work, be concretely implemented, and lead to higher returns so that it is possible to have your cake and eat it too! A must read for the savvy investor." -- DIDIER SORNETTE, Professor on the Chair of Entrepreneurial Risks, ETH Zurich
Author: Daniele Valenti
Publisher:
ISBN:
Category :
Languages : en
Pages :
Get Book Here
Book Description
Author: Qixiang Gao
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
Get Book Here
Book Description
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.
Author: M. A. H. Dempster
Publisher: CRC Press
ISBN: 1000784045
Category : Business & Economics
Languages : en
Pages : 864
Get Book Here
Book Description
Since a major source of income for many countries comes from exporting commodities, price discovery and information transmission between commodity futures markets are key issues for continued economic development. Commodities: Fundamental Theory of Futures, Forwards, and Derivatives Pricing, Second Edition covers the fundamental theory of and derivatives pricing for major commodity markets, as well as the interaction between commodity prices, the real economy, and other financial markets. After a thoroughly updated and extensive theoretical and practical introduction, this new edition of the book is divided into five parts – the fifth of which is entirely new material covering cutting-edge developments. Oil Products considers the structural changes in the demand and supply for hedging services that are increasingly determining the price of oil Other Commodities examines markets related to agricultural commodities, including natural gas, wine, soybeans, corn, gold, silver, copper, and other metals Commodity Prices and Financial Markets investigates the contemporary aspects of the financialization of commodities, including stocks, bonds, futures, currency markets, index products, and exchange traded funds Electricity Markets supplies an overview of the current and future modelling of electricity markets Contemporary Topics discuss rough volatility, order book trading, cryptocurrencies, text mining for price dynamics and flash crashes
Author: Craig Pirrong
Publisher:
ISBN:
Category :
Languages : en
Pages : 46
Get Book Here
Book Description
Using the model-independent approaches of Trolle and Schwartz (2008) and Kozhan et al (2013), we estimate the Variance Risk Premium and Skew Risk Premium for oil market. After estimation, the contribution of the paper is twofold. First, we try to figure out which variables can describe the variation in variance and skew risk premium and the risk-neutral Skewness. The results show that we are able to describe a considerable portion of the variation in all three variables using speculative and macroeconomic factors and most of the variation is being described by by the latter group of variables. We also try to capture the effect of fundamentals of oil market on these variables. The results show that the fundamentals are able to describe big portion of variation in these three variables. Second, we try to predict the return of delta-hedged and delta-vega hedged option portfolios and also oil futures return. The results show that variance risk premium is a significant predictor of delta-hedged portfolio cumulative return with a positive sign while skew risk premium can describe the cumulative return of the delta-Vega Hedged portfolio with negative sign. The results also show that both variance and skew risk premia are significant predictors of cumulative futures return with different signs.
Author: Ilia Bouchouev
Publisher: Springer Nature
ISBN: 3031361512
Category : Mathematics
Languages : en
Pages : 345
Get Book Here
Book Description
The global oil market is no longer solely influenced by the supply and demand of physical oil barrels. In today's landscape, financial barrels traded by hedge funds using quantitative algorithms and dealers managing large portfolios of oil derivatives are equally crucial in determining the price of oil. This book offers a fascinating insight into the world of oil derivatives, exploring the quantitative models and trading strategies used by professional market participants. With a focus on oil options and volatility trading, the reader is taken on a journey through the story of this market, narrated by one of its pioneers who managed a highly successful trading business for almost a quarter of a century. Bridging the fields of energy economics and mathematical finance, this book demonstrates how the science of trading can unearth unique opportunities in the oil market. Written for aspiring quantitative traders and academic researchers alike, it offers a rare glimpse into the opaque and secretive world of oil derivatives, showcasing how it operates in practice.
Author: José Da Fonseca
Publisher:
ISBN:
Category :
Languages : en
Pages : 41
Get Book Here
Book Description
Relying on options written on the USO, an exchange traded fund tracking the daily price changes of the WTI light sweet crude oil, we extract variance and skew risk premiums in a model-free way. We further decompose these risk premiums into downside and upside conditional components and show that they are time varying; that they can be partially explained by USO excess returns and, more importantly, these decomposed risk premiums enable a much better prediction of USO excess returns than the standard, or undecomposed, variance and skew risk premiums.
