Modeling Jump and Continuous Components in the Volatility of Oil Futures

Tseng Tseng-Chan (), Chung Huimin () and Huang Chin-Sheng ()
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Tseng Tseng-Chan: Nan Kai University of Technology
Chung Huimin: National Chiao Tung University
Huang Chin-Sheng: National Yunlin University of Science and Technology

Studies in Nonlinear Dynamics & Econometrics, 2009, vol. 13, issue 3, 30

Abstract: In this study, we use the 'heterogeneous autoregressive' (HAR) model and replace all squared returns with a squared range to estimate realized range-based volatility (RRV) forecasts for oil futures prices. Our findings demonstrate that the HAR-RRV models, involving volatility measures with a realized range-based estimator, successfully capture the long-term memory behavior of volatility in oil futures contracts. We find that realized range-based bi-power variation (RBV), which is also immune to jumps, is a better regressor for future volatility prediction, significantly outperforming the AR model. Similar to the findings for financial markets, we also find that the jump components of RRV have little predictive power for oil futures contracts.

Date: 2009
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DOI: 10.2202/1558-3708.1671

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