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- Title
Pricing Dynamics of Oil Futures with Tail Risk.
- Authors
Yang, Xinglin; Chen, Ji; Xu, Yiming
- Abstract
Oil is one of the most important commodities in the global economy. We study jump tail risks in the oil market by developing a new model for depicting commodity prices. This model combines the cost of carry, stochastic volatility, and the tail factor. An application of this model shows that tail risk significantly matters in the pricing dynamics of oil futures. The use of the tail factor, which is orthogonal to the variance factor, improves performance in forecasting future oil returns, particularly at the short horizon.
- Publication
Journal of Derivatives, 2022, Vol 29, Issue 3, p85
- ISSN
1074-1240
- Publication type
Academic Journal
- DOI
10.3905/jod.2022.1.151