Which Risk Factors Drive Oil Futures Price Curves?

63 Pages Posted: 20 Sep 2016 Last revised: 3 Feb 2020

See all articles by Matthew Ames

Matthew Ames

The Institute of Statistical Mathematics

Guillaume Bagnarosa

ESC Rennes School of Business

Tomoko Matsui

Independent

Gareth Peters

Department of Actuarial Mathematics and Statistics, Heriot-Watt University; University College London - Department of Statistical Science; University of Oxford - Oxford-Man Institute of Quantitative Finance; London School of Economics & Political Science (LSE) - Systemic Risk Centre; University of New South Wales (UNSW) - Faculty of Science

Pavel V. Shevchenko

Macquarie University; Macquarie University, Macquarie Business School

Date Written: December 30, 2019

Abstract

Supplementary material available at: https://ssrn.com/abstract=3312707

We develop extensions that introduce regression structure to the multi-factor stochastic models of commodity futures price term structure dynamics. We demonstrate the accuracy with which these models can be calibrated to oil futures data and how they improve on existing models both in model fit and in model interpretation. We found leading observable factors that contribute to explaining the term structure of oil futures, in the presence of long and short term stochastic factors, included the dollar index, inventories, commodity indices and risk aversion associated to financial intermediaries. Furthermore, we determine the time frame on which these factors are explanatory.

Keywords: Crude oil futures, Theory of storage, Theory of normal backwardation, Hedging pressure, Futures Term structure

JEL Classification: C01, C1, C5, G13, Q02

Suggested Citation

Ames, Matthew and Bagnarosa, Guillaume and Matsui, Tomoko and Peters, Gareth and Shevchenko, Pavel V., Which Risk Factors Drive Oil Futures Price Curves? (December 30, 2019). Available at SSRN: https://ssrn.com/abstract=2840730 or http://dx.doi.org/10.2139/ssrn.2840730

Matthew Ames (Contact Author)

The Institute of Statistical Mathematics ( email )

Tokyo
Japan

Guillaume Bagnarosa

ESC Rennes School of Business ( email )

2, RUE ROBERT D'ARBRISSEL
Rennes, 35065
France

Tomoko Matsui

Independent ( email )

Gareth Peters

Department of Actuarial Mathematics and Statistics, Heriot-Watt University ( email )

Edinburgh Campus
Edinburgh, EH14 4AS
United Kingdom

HOME PAGE: http://garethpeters78.wixsite.com/garethwpeters

University College London - Department of Statistical Science ( email )

1-19 Torrington Place
London, WC1 7HB
United Kingdom

University of Oxford - Oxford-Man Institute of Quantitative Finance ( email )

University of Oxford Eagle House
Walton Well Road
Oxford, OX2 6ED
United Kingdom

London School of Economics & Political Science (LSE) - Systemic Risk Centre ( email )

Houghton St
London
United Kingdom

University of New South Wales (UNSW) - Faculty of Science ( email )

Australia

Pavel V. Shevchenko

Macquarie University ( email )

North Ryde
Sydney, New South Wales 2109
Australia

HOME PAGE: http://www.businessandeconomics.mq.edu.au/contact_the_faculty/all_fbe_staff/pavel_shevchenko

Macquarie University, Macquarie Business School ( email )

New South Wales 2109
Australia

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