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Evidence of unspanned stochastic volatility in crude-oil market

Razvan Tudor

No 33, Advances in Economic and Financial Research - DOFIN Working Paper Series from Bucharest University of Economics, Center for Advanced Research in Finance and Banking - CARFIB

Abstract: The purpose of this paper is to conduct a comprehensive analysis of unspanned stochastic volatility in commodity markets with focus and empirical evidence on crude-oil market. Using crude-oil futures and options on futures data from New York Mercantile Exchange (NYMEX) there are presented model-free results that strongly suggest the presence of unspanned stochastic volatility in the crude-oil market. Sharp oil prices changes exert influence on macroeconomic activity in general and crude-oil industry in particular. The importance of the results is that they show the extent to which volatility risk is spanned by the futures contracts. The extent to which crude-oil futures contracts trading span volatility will indicate if options on futures are redundant securities or there is needed a mixed strategy combining both types of crude-oil market derivatives (futures and options) to fully hedge against volatility risk.

Keywords: unspanned stochastic volatility; oil market (search for similar items in EconPapers)
Date: 2009-10
New Economics Papers: this item is included in nep-ene
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http://www.dofin.ase.ro/Working%20papers/Tudor%20R ... van.dissertation.pdf First version, 2008 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:cab:wpaefr:33

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