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Time-varying market price of risk in the crude oil futures market

โœ Scribed by Ramaprasad Bhar; Damien Lee

Publisher
John Wiley and Sons
Year
2010
Tongue
English
Weight
216 KB
Volume
31
Category
Article
ISSN
0270-7314

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โœฆ Synopsis

Abstract

In this study, a threeโ€factor model of crude oil prices is estimated, which incorporates a timeโ€varying market price of risk. The model is able to accurately capture the term structure of futures prices with evidence suggesting that risk premiums in the crude oil market are timeโ€varying. Using the crossโ€section of futures prices, we estimate a timeโ€series of the market price of risk in the crude oil market implied by the model. We find that the risk premiums in the crude oil market are driven by the same risk factors as equity and bond markets. ยฉ 2010 Wiley Periodicals, Inc. Jrl Fut Mark 31:779โ€“807, 2011

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