Knowledge Discovery to Support WTI Crude Oil Price Risk Management

Radosław Puka, Bartosz Łamasz, Iwona Skalna (), Beata Basiura and Jerzy Duda
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Radosław Puka: Faculty of Management, AGH University of Krakow, 30-059 Kraków, Poland
Bartosz Łamasz: Faculty of Management, AGH University of Krakow, 30-059 Kraków, Poland
Iwona Skalna: Faculty of Management, AGH University of Krakow, 30-059 Kraków, Poland
Beata Basiura: Faculty of Management, AGH University of Krakow, 30-059 Kraków, Poland
Jerzy Duda: Faculty of Management, AGH University of Krakow, 30-059 Kraków, Poland

Energies, 2023, vol. 16, issue 8, 1-14

Abstract: The high volatility of commodity prices and various problems that the energy sector has to deal with in the era of COVID-19 have significantly increased the risk of oil price changes. These changes are of the main concern of companies for which oil is the main input in the production process, and therefore oil price determines the production costs. The main goal of this paper is to discover decision rules for a buyer of American WTI (West Texas Intermediate) crude oil call options. The presented research uses factors characterizing the option price, such as implied volatility and option sensitivity factors (delta, gamma, vega, and theta, known as “Greeks”). The performed analysis covers the years 2008–2022 and options with an exercise period up to three months. The decision rules are discovered using association analysis and are evaluated in terms of the three investment efficiency indicators: total payoff, average payoff, and return on investment. The results show the existence of certain ranges of the analyzed parameters for which the mentioned efficiency indicators reached particularly high values. The relationships discovered and recorded in the form of decision rules can be effectively used or adapted by practitioners to support their decisions in oil price risk management.

Keywords: knowledge discovery; decision rules; crude oil price risk; commodity options; implied volatility; Greeks; decision making (search for similar items in EconPapers)
JEL-codes: Q Q0 Q4 Q40 Q41 Q42 Q43 Q47 Q48 Q49 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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