RT Journal Article
SR Electronic
T1 Pricing Dynamics of Oil Futures with Tail Risk
JF The Journal of Derivatives
FD Institutional Investor Journals
SP 85
OP 105
DO 10.3905/jod.2022.1.151
VO 29
IS 3
A1 Xinglin Yang
A1 Ji Chen
A1 Yiming Xu
YR 2022
UL https://pm-research.com/content/29/3/85.abstract
AB Oil is one of the most important commodities in the global economy. We study jump tail risks in the oil market by developing a new model for depicting commodity prices. This model combines the cost of carry, stochastic volatility, and the tail factor. An application of this model shows that tail risk significantly matters in the pricing dynamics of oil futures. The use of the tail factor, which is orthogonal to the variance factor, improves performance in forecasting future oil returns, particularly at the short horizon.