 A Volatility Method of Crude Oil Dynamics: The Role of Market and Commodity Volatilities in Determining Equilibrium PricesMPRA Paper from University Library of Munich, Germany Abstract: This paper develops a volatility-based framework for crude oil pricing by examining the interaction between financial market volatility and commodity-specific risk. The spot price of oil is modeled as a linear combination of stock market and commodity volatilities, allowing the derivation of equilibrium conditions linking financial and commodity markets. Particular attention is given to the dynamics of the functions (A(t,T)) and (B(t,T)), whose evolution reveals a common trajectory consistent with equilibrium behavior between oil price volatility and underlying commodity risk. The analysis highlights the role of volatility transmission mechanisms in shaping commodity prices and provides a novel perspective on the connection between financial market fluctuations and real economic fundamentals. The findings contribute to the literature on commodity pricing by offering a volatility-driven approach that integrates market expectations and risk dynamics into the valuation of crude oil. Keywords: Volatility Models; Financial Equilibrium; Long Memory; Commodity Risk (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:129471 Access Statistics for this paper More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC. |
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