Is There Any Black Swan Hidden in the Oil Markets?

11 Pages Posted: 14 Oct 2012

See all articles by Sofiane Aboura

Sofiane Aboura

Université Paris XIII Nord - Department of Economics and Management

Date Written: October 13, 2012

Abstract

Since the last three decades, advanced economies have been facing a substantial rise not only in the crude oil price but also in the oil price volatility. Quantifying the tail risk has become a prominent issue for investment decisions and risk management. This article reveals the existence of a tail risk hidden in the oil market by applying, for the first time, an extreme value theory analysis with a quantile regression procedure. An empirical test is carried out on the daily West Texas Intermediate (WTI) crude oil prices from 1983 to 2011. The main results indicate that the WTI becomes extreme from a daily variation of 3.50% and -2.50%. In addition, the maximum one-day variation which should be exceeded in one year every century is 20% and -30%.

Keywords: Crude Oil market, Volatility, Risk Management

JEL Classification: C4, G1

Suggested Citation

Aboura, Sofiane, Is There Any Black Swan Hidden in the Oil Markets? (October 13, 2012). Available at SSRN: https://ssrn.com/abstract=2161337 or http://dx.doi.org/10.2139/ssrn.2161337

Sofiane Aboura (Contact Author)

Université Paris XIII Nord - Department of Economics and Management ( email )

99 avenue Jean-Baptiste
Clément, Villetaneuse 93430
France

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