Which Risk Factors Drive Oil Futures Price Curves?
63 Pages Posted: 20 Sep 2016 Last revised: 3 Feb 2020
Date Written: December 30, 2019
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: Suggested Citation