Detecting volatility changes across the oil sector

The pricing of contingent claims relies on the estimation of variance and the duration of the changes in variance. A better understanding of the changes in variance is also important in portfolio hedging strategies that use optimal hedge ratios. A study examines the extent of sudden changes in varia...

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Bibliographic Details
Published in:The journal of futures markets 1996-05, Vol.16 (3), p.313-330
Main Authors: Wilson, Berry, Aggarwal, Reena, Inclan, Carla
Format: Article
Language:English
Subjects:
Economic models
Economic shock
Futures
Futures market
Hedging
Oil price
Petroleum industry
Price instability
Studies
Time series
Volatility
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Summary:The pricing of contingent claims relies on the estimation of variance and the duration of the changes in variance. A better understanding of the changes in variance is also important in portfolio hedging strategies that use optimal hedge ratios. A study examines the extent of sudden changes in variance with the use of iterative cumulative sum-of-squares methodology in 3 series: the 1-month oil futures return series, a series constructed from the returns of oil-producing companies, and an S&P 500 return series. The results indicate that the oil futures series is susceptible to sudden volatility changes during key time periods during the 1980s and 1990s.
ISSN:0270-7314
1096-9934
DOI:10.1002/(SICI)1096-9934(199605)16:3<313::AID-FUT4>3.0.CO;2-M