Regime Switching Entropic Risk Measures on Crude Oil Pricing

Babacar Seck and Robert J. Elliott

Papers from arXiv.org

Abstract: This paper introduces a new type of risk measures, namely regime switching entropic risk measures, and study their applicability through simulations. The state of the economy is incorporated into the entropic risk formulation by using a Markov chain. Closed formulae of the risk measure are obtained for futures on crude oil derivatives. The applicability of these new types of risk measures is based on the study of the risk aversion parameter and the convenience yield. The numerical results show a term structure and a mean-reverting behavior of the convenience yield.

Date: 2021-12
New Economics Papers: this item is included in nep-ene and nep-rmg
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