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Petroleum Term Structure Dynamics and the Role of Regimes

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  • Nikos K. Nomikos
  • Panos K. Pouliasis

Abstract

This study investigates the dependence structure between correlated petroleum forward curves. After decomposing the term structure into level, slope, and curvature shocks we develop a flexible multi‐regime error‐correction factor model of the dynamics of the joint evolution of commodity pairs' curves. Volatilities and disequilibria across regimes are markedly different whereas the information content of the suggested framework is also tested in forecasting and value‐at‐risk experiments. The findings of this study have important implications for energy trading and risk management being particularly useful for predicting short‐term spreads and the correlation matrix among traded contracts. © 2014 Wiley Periodicals, Inc. Jrl Fut Mark 35:163–185, 2015

Suggested Citation

  • Nikos K. Nomikos & Panos K. Pouliasis, 2015. "Petroleum Term Structure Dynamics and the Role of Regimes," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 35(2), pages 163-185, February.
  • Handle: RePEc:wly:jfutmk:v:35:y:2015:i:2:p:163-185
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    Cited by:

    1. Población, Javier & Serna, Gregorio, 2016. "Is the refining margin stationary?," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 169-186.
    2. Pouliasis, Panos K. & Papapostolou, Nikos C. & Kyriakou, Ioannis & Visvikis, Ilias D., 2018. "Shipping equity risk behavior and portfolio management," Transportation Research Part A: Policy and Practice, Elsevier, vol. 116(C), pages 178-200.
    3. Baruník, Jozef & Malinská, Barbora, 2016. "Forecasting the term structure of crude oil futures prices with neural networks," Applied Energy, Elsevier, vol. 164(C), pages 366-379.
    4. Chang, Kuang-Liang & Lee, Chingnun, 2020. "The asymmetric spillover effect of the Markov switching mechanism from the futures market to the spot market," International Review of Economics & Finance, Elsevier, vol. 69(C), pages 374-388.
    5. Panos K. Pouliasis & Ilias D. Visvikis & Nikos C. Papapostolou & Alexander A. Kryukov, 2020. "A novel risk management framework for natural gas markets," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 40(3), pages 430-459, March.

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