Evidence of infinite and finite jump processes in commodity futures prices: Crude oil and natural gas

Wenbin Cao, Scott B. Guernsey and Scott Linn

Physica A: Statistical Mechanics and its Applications, 2018, vol. 502, issue C, 629-641

Abstract: We examine the frequency and character of price jumps in front month oil and natural gas futures prices. Prices are sampled every five seconds over the period 2006–2014. Our test results indicate that jumps in crude oil and natural gas futures prices can be decomposed into an infinite activity jump diffusion process and a less frequent but larger jump process. We also find that we cannot reject the hypothesis that Brownian motion is also present in both return series. The results are based on a battery of tests that are “model free”. We further find that jumps account for respectively 36 and 41 percent of the realized variances of the crude oil and the natural gas returns.

Keywords: Commodity return models; Infinite and finite activity jump processes; Non-parametric model-free jump tests; Crude oil futures prices; Natural gas futures prices (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:502:y:2018:i:c:p:629-641

DOI: 10.1016/j.physa.2018.03.007

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