Application of extreme value theorem in modelling oil consumption of organisation of petroleum exporting countries

Masha Ahoba Buah, Victor Amoako Temeng, Samuel Kwesi Asiedu Addo and Yao Yevenyo Ziggah

International Journal of Business Forecasting and Marketing Intelligence, 2022, vol. 7, issue 3, 259-276

Abstract: In this study, oil consumption of organisation of petroleum exporting countries (OPEC) from 1973 to 2018 is modelled using extreme value theorem (EVT). The main objective of this paper was to employ both the block maxima method and peak over threshold method to determine the best fitting distribution to extreme oil consumption of OPEC. In both approaches, the maximum likelihood estimation was applied to determine the distribution parameters. Findings from the study revealed that the optimal model from the generalised extreme value (GEV) distribution was the Weibull distribution with shape, scale, and location parameter values of -0.63, 6,217.54 and 26,773.21. The optimal model from the generalised Pareto distribution (GPD) was Pareto type II distribution with shape and scale parameters of 0.04 and 666.64 at a threshold value of 34,000. A comparison of the return levels revealed that GPD gave higher return level estimates than GEV. In the study, GEV was chosen over GPD because the difference between the 95% lower and upper confidence intervals and the actual return level for the BMM was found to be lower as compared to the POT approach.

Keywords: block maxima method; BMM; peak over threshold; POT; Weibull distribution; return period. (search for similar items in EconPapers)
Date: 2022
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