Proposing the Method to Predict the Breakeven Oil Price for Hedging and Sustainable Finance in Oil Exporting Countries: An Empirical Study in Algeria Using the Blackscholes Model

Bendob Ali () and Naima Bentouir ()
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Bendob Ali: University Center of AinTemouchent
Naima Bentouir: University Center of AinTemouchent

No 1418, Working Papers from Economic Research Forum

Abstract: Oil-exporting countries suffer from the volatility of oil prices, especially in the recent period, which makes them vulnerable to risk trying to find a hedging strategy. This paper aims to propose a new method to predict the fiscal breakeven oil price, for oil-exporting countries based on an empirical study using the Black-Scholes model in Algeria. To achieve our examination we use the oil prices with daily data during the period of 02/01/2013 to 21/09/2020, the fiscal breakeven oil prices and external breakeven oil prices from 2000 to 2020, which are determined by the International Monetary Fund (IMF); in addition to the fiscal breakeven oil prices of Algeria. The main results of our study highlight that there is a strong correlation between the fiscal breakeven prices based on the Black-Scholes model and the external breakeven price, and weak correlation with the IMF’s fiscal breakeven prices, which means that the Black-Scholes model is outperforming to predict the fiscal oil prices in comparison with the IMF method. The results also indicate that there is a negative correlation between the B-S and the reference prices indicated in Algeria's public budget.

Pages: 19
Date: 2020-11-20, Revised 2020-11-20
New Economics Papers: this item is included in nep-ara and nep-ene
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Published by The Economic Research Forum (ERF)

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