TY - JOUR
T1 - Humps in the volatility structure of the crude oil futures market
T2 - New evidence
AU - Chiarella, C.
AU - Kang, B.
AU - Nikitopoulos, C.S.
AU - Tô, T.-D.
PY - 2013
Y1 - 2013
N2 - 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.
AB - 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.
UR - http://www.scopus.com/inward/record.url?scp=84879495883&partnerID=8YFLogxK
U2 - 10.1016/j.eneco.2013.05.019
DO - 10.1016/j.eneco.2013.05.019
M3 - Article
SN - 0140-9883
VL - n/a
SP - n/a
JO - Energy economics
JF - Energy economics
ER -