Risk Premia in Crude Oil Futures Prices PDF Download
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Author: James Douglas Hamilton
Publisher:
ISBN:
Category : Economics
Languages : en
Pages :
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Book Description
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.
Author: James Douglas Hamilton
Publisher:
ISBN:
Category : Economics
Languages : en
Pages :
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Book Description
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.
Author: Marko Melolinna
Publisher:
ISBN: 9789524626590
Category :
Languages : en
Pages : 40
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Book Description
Author: Hongbo Liao
Publisher:
ISBN:
Category :
Languages : en
Pages : 28
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Book Description
Author: Reinhard Ellwanger
Publisher:
ISBN:
Category : Petroleum products
Languages : en
Pages : 36
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Book Description
Author: Xin (Shane) Gao
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
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.
Author: Karl Larsson
Publisher:
ISBN:
Category :
Languages : en
Pages : 34
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Book Description
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.
Author: Christiane Baumeister
Publisher:
ISBN:
Category : Futures market
Languages : en
Pages : 10
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Book Description
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.
Author: Qixiang Gao
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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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: Patrizio Pagano
Publisher:
ISBN:
Category : Petroleum products
Languages : en
Pages : 52
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Book Description
Author: Mr.Manmohan S. Kumar
Publisher: International Monetary Fund
ISBN: 145194196X
Category : Business & Economics
Languages : en
Pages : 32
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Book Description
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.
