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Forecasting the Term Structure of Crude Oil Futures Prices with Neural Networks

Author

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  • Jozef Barunik

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic
    Institute of Information Theory and Automation, Academy of Sciences of the Czech Republic, Pod Vodarenskou Vezi 4, 182 00, Prague, Czech Republic)

  • Barbora Malinska

    (Institute of Economic Studies, Faculty of Social Sciences, Charles University in Prague, Smetanovo nabrezi 6, 111 01 Prague 1, Czech Republic)

Abstract

The paper contributes to the rare literature modeling term structure of crude oil markets. We explain term structure of crude oil prices using dynamic Nelson-Siegel model, and propose to forecast them with the generalized regression framework based on neural networks. The newly proposed framework is empirically tested on 24 years of crude oil futures prices covering several important recessions and crisis periods. We find 1-month, 3-month, 6-month and 12-month-ahead forecasts obtained from focused time-delay neural network to be significantly more accurate than forecasts from other benchmark models. The proposed forecasting strategy produces the lowest errors across all times to maturity.

Suggested Citation

  • Jozef Barunik & Barbora Malinska, 2015. "Forecasting the Term Structure of Crude Oil Futures Prices with Neural Networks," Working Papers IES 2015/25, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Nov 2015.
    • Handle: RePEc:fau:wpaper:wp2015_25
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    JEL classification:

    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • C45 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Neural Networks and Related Topics
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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