Modeling Jump and Continuous Components in the Volatility of Oil Futures

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

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

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.

Keywords: volatility forecasting; HAR-RRV model; realized range-based variance; high-frequency data; oil futures (search for similar items in EconPapers)
JEL-codes: C32 G13 Q40 (search for similar items in EconPapers)
Date: 2009

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Persistent link: http://EconPapers.repec.org/RePEc:bpj:sndecm:v:13:y:2009:i:3:n:5

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