Effective energy commodities’ risk management: Econometric modeling of price volatility

Halkos, George and Tzirivis, Apostolos (2018): Effective energy commodities’ risk management: Econometric modeling of price volatility.

Abstract

The current study emphasizes on the importance of the development of an effective price risk management strategy regarding energy products, as a result of the high volatility of that particular market. The study provides a thorough investigation of the energy price volatility, through the use of GARCH type model variations and the Markov-Switching GARCH methodology, as they are presented in the most representative academic researches. A large number of GARCH type models are exhibited together with the methodology and all the econometric procedures and tests that are necessary for developing a robust and precise forecasting model regarding energy price volatility. Nevertheless, the present research moves another step forward, in an attempt to cover also the probability of potential shifts in the unconditional variance of the models due to the effect of economic crises and several unexpected geopolitical events into the energy market prices.

• Item Type: MPRA Paper
• Language: English
• Keywords: Energy commodities, WTI oil, Brent oil, electricity, natural gas, gasoline, risk management, volatility modeling, ARCH-GARCH models, Markov-Switching GARCH models.
• Subjects: C - Mathematical and Quantitative Methods > C0 - General > C01 - Econometrics; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty; G - Financial Economics > G3 - Corporate Finance and Governance; O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O13 - Agriculture ; Natural Resources ; Energy ; Environment ; Other Primary Products; P - Economic Systems > P2 - Socialist Systems and Transitional Economies > P28 - Natural Resources ; Energy ; Environment; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q43 - Energy and the Macroeconomy; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q4 - Energy > Q47 - Energy Forecasting; Q - Agricultural and Natural Resource Economics ; Environmental and Ecological Economics > Q5 - Environmental Economics > Q58 - Government Policy

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