EconPapers    
Economics at your fingertips  
 

Oil price volatility forecast with mixture memory GARCH

Tony Klein and Thomas Walther

Energy Economics, 2016, vol. 58, issue C, 46-58

Abstract: We expand the literature of volatility and Value-at-Risk forecasting of oil price returns by comparing the recently proposed Mixture Memory GARCH (MMGARCH) model to other discrete volatility models (GARCH, RiskMetrics, EGARCH, APARCH, FIGARCH, HYGARCH, and FIAPARCH). We incorporate an Expectation-Maximization algorithm for parameter estimation of the MMGARCH and find different structures in volatility level as well as shock persistence. MMGARCH is also able to cover asymmetric and long memory effects. Furthermore, a dissimilar memory structure in variance of WTI and Brent crude oil prices is observed which is supported by additional tests. Parameter estimation and comparison of the models reveal significant long memory and asymmetry in oil price returns. In regard of variance forecasting and Value-at-Risk prediction, it is shown that MMGARCH outperforms the aforementioned models due to its dynamic approach in varying the volatility level and memory of the process. We find MMGARCH superior for application in risk management as a result of its flexibility in adjusting to variance shifts and shocks.

Keywords: GARCH-type models; Long memory; Asymmetry; Mixture memory; Oil price volatility; Value-at-Risk; Volatility structure (search for similar items in EconPapers)
JEL-codes: C22 C53 G17 Q47 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (59)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0140988316301396
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:eneeco:v:58:y:2016:i:c:p:46-58

DOI: 10.1016/j.eneco.2016.06.004

Access Statistics for this article

Energy Economics is currently edited by R. S. J. Tol, Beng Ang, Lance Bachmeier, Perry Sadorsky, Ugur Soytas and J. P. Weyant

More articles in Energy Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().

 
Page updated 2025-03-19
Handle: RePEc:eee:eneeco:v:58:y:2016:i:c:p:46-58