The Fundamental and Speculative Components of the Oil Spot Price: A Real Option Value Approach
Claudio Dicembrino () and
Pasquale Scandizzo ()
No 229, CEIS Research Paper from Tor Vergata University, CEIS
This paper investigates the recent evolution of the oil price, with the objective to analyze the main drivers that during last fifteen years have led the unstable path and the volatility persistence in the international oil market. We assume that the oil price is composed by two components, deterministic and speculative. The first one can be defined as the certain one, and it is referred to the fundamental component given by supply and demand interaction. Differently, the uncertain one is given by unclear changes in the price structure, and it is assumed to be linked to the speculative activity. Through a structural equation model (SEM) in a linear reduced form we find that the speculation in the oil market measured with the real option methodology can improve the traditional model explaining a consistent part of the oil fluctuations.
Keywords: structural model; oil price; speculation; volatility; option. (search for similar items in EconPapers)
JEL-codes: C26 C53 Q41 Q47 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2012-04-18, Revised 2012-04-18
New Economics Papers: this item is included in nep-cwa and nep-ene
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Persistent link: https://EconPapers.repec.org/RePEc:rtv:ceisrp:229
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