IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

The Estimation of Risk Premium Implicit in Oil Prices

  • Jorge Barros Luís
Registered author(s):

    Futures prices can be seen as a sum of the expected value of the underlying asset price with a risk premium. In order to disentangle those two components of the futures prices, one can try to model the relationship between spot and futures prices, in order to obtain a closed expression for the risk premium, or to use information from spot and option prices to estimate risk aversion functions. Given the high volatility of the ratios between futures and spot prices, we opted for the latter, estimating risk-neutral and subjective probability density functions, respectively from option and spot prices observed. Looking at the prices of Brent and West Texas Intermediate Light/Sweet Crude Oil options, evidence obtained suggests that the risk premium is typically very low for levels near the futures prices.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.bportugal.pt/en-US/BdP%20Publications%20Research/WP200002.pdf
    Download Restriction: no

    Paper provided by Banco de Portugal, Economics and Research Department in its series Working Papers with number w200002.

    as
    in new window

    Length:
    Date of creation: 2000
    Date of revision:
    Handle: RePEc:ptu:wpaper:w200002
    Contact details of provider: Postal: R. do Ouro, 27, 1100 LISBOA
    Phone: 21 321 32 00
    Fax: 21 346 48 43
    Web page: http://www.bportugal.pt
    Email:


    More information through EDIRC

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Ait-Sahalia, Yacine & Lo, Andrew W., 2000. "Nonparametric risk management and implied risk aversion," Journal of Econometrics, Elsevier, vol. 94(1-2), pages 9-51.
    2. Considine, Timothy J. & Larson, Donald F., 1996. "Uncertainty and the price for crude oil reserves," Policy Research Working Paper Series 1655, The World Bank.
    3. Jackwerth, Jens Carsten & Rubinstein, Mark, 1996. " Recovering Probability Distributions from Option Prices," Journal of Finance, American Finance Association, vol. 51(5), pages 1611-32, December.
    4. Jens Carsten Jackwerth, 1998. "Recovering Risk Aversion from Option Prices and Realized Returns," Finance 9803002, EconWPA.
    5. Rosenberg, Joshua V. & Engle, Robert F., 2002. "Empirical pricing kernels," Journal of Financial Economics, Elsevier, vol. 64(3), pages 341-372, June.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:ptu:wpaper:w200002. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (DEE-NTDD)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.