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Oil Price Forecasting Using a Time-Varying Approach

Author

Listed:
  • Lu-Tao Zhao

    (School of Mathematics and Physics, University of Science and Technology Beijing, Beijing 100083, China
    Center for Energy and Environmental Policy Research & School of Management and Economics, Beijing Institute of Technology, Beijing 100081, China)

  • Shun-Gang Wang

    (School of Mathematics and Physics, University of Science and Technology Beijing, Beijing 100083, China)

  • Zhi-Gang Zhang

    (School of Mathematics and Physics, University of Science and Technology Beijing, Beijing 100083, China)

Abstract

The international crude oil market plays an important role in the global economy. This paper uses a variable time window and the polynomial decomposition method to define the trend term of time series and proposes a crude oil price forecasting method based on time-varying trend decomposition to describe the changes in trends over time and forecast crude oil prices. First, to characterize the time-varying characteristics of crude oil price trends, the basic concepts of post-position intervals, pre-position intervals and time-varying windows are defined. Second, a crude oil price series is decomposed with a time-varying window to determine the best fitting results. The parameter vector is used as a time-varying trend. Then, to quantitatively describe the continuation of the time-varying trend, the concept of the trend threshold is defined, and a corresponding algorithm for selecting the trend threshold is given. Finally, through the predicted trend thresholds, the historical reference data are selected, and the time-varying trend is combined to complete the crude oil price forecast. Through empirical research, it is found that the time-varying trend prediction model proposed in this paper achieves a better prediction than several common models. These results can provide suggestions and references for investors in the international crude oil market to understand the trends of oil prices and improve their investment decisions.

Suggested Citation

  • Lu-Tao Zhao & Shun-Gang Wang & Zhi-Gang Zhang, 2020. "Oil Price Forecasting Using a Time-Varying Approach," Energies, MDPI, vol. 13(6), pages 1-16, March.
    • Handle: RePEc:gam:jeners:v:13:y:2020:i:6:p:1403-:d:333553
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    References listed on IDEAS

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    3. Yu-Wei Chen & Chui-Yu Chiu & Mu-Chun Hsiao, 2021. "An Auxiliary Index for Reducing Brent Crude Investment Risk—Evaluating the Price Relationships between Brent Crude and Commodities," Sustainability, MDPI, vol. 13(9), pages 1-45, April.

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