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A Methodology for the Choice of the Best Fitting Continuous-Time Stochastic Models of Crude Oil Price: The Case of Russia

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Author Info

  • Hamidreza Mostafaei

    (Department of Statistics, Tehran North Branch, Islamic Azad University, Tehran, Iran)

  • Ali Akbar Rahimzadeh Sani

    (Department of Mathematics, Teacher Training University of Tehran, IRAN)

  • Samira Askari

    (M.Sc Statistics, Tehran North Branch, Islamic Azad University)

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    Abstract

    In this study, it has been attempted to select the best continuous- time stochastic model, in order to describe and forecast the oil price of Russia, by information and statistics about oil price that has been available for oil price in the past. For this purpose, method of The Maximum Likelihood Estimation is implemented for estimation of the parameters of continuous-time stochastic processes. The result of unit root test with a structural break, reveals that time series of the crude oil price is a stationary series. The simulation of continuous-time stochastic processes and the mean square error between the simulated prices and the market ones shows that the Geometric Brownian Motion is the best model for the Russian crude oil price.

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    Bibliographic Info

    Article provided by Econjournals in its journal International Journal of Energy Economics and Policy.

    Volume (Year): 3 (2013)
    Issue (Month): 2 ()
    Pages: 137-142

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    Handle: RePEc:eco:journ2:2013-02-3

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    Web page: http://www.econjournals.com

    Related research

    Keywords: Stochastic processes; Crude oil price; Unit root test; Structural break; MLE estimation; Simulation;

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    1. Perron, P., 1994. "Further Evidence on Breaking Trend Functions in Macroeconomic Variables," Cahiers de recherche 9421, Universite de Montreal, Departement de sciences economiques.
    2. Robert S. Pindyck, 1999. "The Long-Run Evolutions of Energy Prices," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 1-27.
    3. Perron, P, 1988. "The Great Crash, The Oil Price Shock And The Unit Root Hypothesis," Papers 338, Princeton, Department of Economics - Econometric Research Program.
    4. Kaffel, Bilel & Abid, Fathi, 2009. "A methodology for the choice of the best fitting continuous-time stochastic models of crude oil price," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(3), pages 971-1000, August.
    5. Postali, Fernando A.S. & Picchetti, Paulo, 2006. "Geometric Brownian Motion and structural breaks in oil prices: A quantitative analysis," Energy Economics, Elsevier, vol. 28(4), pages 506-522, July.
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