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Skew–Brownian processes for estimating the volatility of crude oil Brent

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  • Bufalo, Michele
  • Liseo, Brunero
  • Orlando, Giuseppe

Abstract

To predict the volatility of crude oil Brent price, we propose a novel econometric model 11The numerical results presented in this manuscript were reproduced by the Editor-in-Chief on 30 June 2024. where the explanatory variables are a combination of macroeconomic variables (i.e. price pressure), trade data (freight shipment index), and market sentiment (gold volatility). The model is proposed in two alternative variants: first, we assume Gaussian distributed quantities; alternatively, we consider the potential presence of skewness and adopt a Skew–Brownian process. We show that the suggested approach outperforms the selected baseline model as well as other models proposed in the literature, especially when turbulent periods occur.

Suggested Citation

  • Bufalo, Michele & Liseo, Brunero & Orlando, Giuseppe, 2025. "Skew–Brownian processes for estimating the volatility of crude oil Brent," International Journal of Forecasting, Elsevier, vol. 41(2), pages 763-780.
    • Handle: RePEc:eee:intfor:v:41:y:2025:i:2:p:763-780
    DOI: 10.1016/j.ijforecast.2024.06.009
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    References listed on IDEAS

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