EconPapers    
Economics at your fingertips  
 

Modeling ex-ante risk premia in the oil market

Georges Prat () and Remzi Uctum ()

Post-Print from HAL

Abstract: Using survey-based data we show that oil price expectations are not rational, implying that the ex-ante premium is a more relevant concept than the widely popular expost premium. We propose for the 3-and 12-month horizons a portfolio choice model with risky oil assets and a risk-free asset. At the maximized expected utility the risk premium is defined as the risk price times the expected oil return volatility. A state-space model, where the risk prices are represented as stochastic unobservable components and where expected volatilities depend on historical squared returns, is estimated using Kalman filtering. We find that the representative investor is risk seeking at short horizons and risk averse at longer horizons. We examine the economic factors driving risk prices whose signs are shown to be consistent with the predictions of the prospect theory. An upward sloped term structure of oil risk premia prevails in average over the period.

Keywords: oil market; oil price expectations; ex-ante risk premium JEL classification : D81 (search for similar items in EconPapers)
Date: 2021-06-03
New Economics Papers: this item is included in nep-ene, nep-isf, nep-rmg and nep-upt
Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-03318785
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Published in 5th International Workshop on Financial Markets and Nonlinear Dynamics (FMND), Jun 2021, Paris, France

Downloads: (external link)
https://hal.archives-ouvertes.fr/hal-03318785/document (application/pdf)

Related works:
Working Paper: Modeling ex-ante risk premia in the oil market (2021) Downloads
Working Paper: Modeling ex-ante risk premia in the oil market (2021)
Working Paper: Modeling ex-ante risk premia in the oil market (2021) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03318785

Access Statistics for this paper

More papers in Post-Print from HAL
Bibliographic data for series maintained by CCSD ().

 
Page updated 2022-08-19
Handle: RePEc:hal:journl:hal-03318785