Abstract
| Original language | English |
|---|---|
| Pages (from-to) | 68-81 |
| Number of pages | 13 |
| Journal | European Journal of Business and Management |
| Volume | 9 |
| Issue number | 9 |
| Early online date | 3 Apr 2017 |
| Publication status | Published - Apr 2017 |
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Keywords
- Brownian Motion
- oil prices
- forecast evaluation techniques
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Simulation and hedging oil price with geometric Brownian Motion and single-step binomial price model. / Nwafor, Chioma N.; Oyedele, Azeez A.
In: European Journal of Business and Management, Vol. 9, No. 9, 04.2017, p. 68-81.Research output: Contribution to journal › Article
TY - JOUR
T1 - Simulation and hedging oil price with geometric Brownian Motion and single-step binomial price model
AU - Nwafor, Chioma N.
AU - Oyedele, Azeez A.
N1 - OA journal - statement at footer of journal webpage: 'This journal follows ISO 9001 management standard and licensed under a Creative Commons Attribution 3.0 License.' See link to article above. No entry in Sherpa for this journal. Publisher version uploaded by author, made open as CC-BY content however note that this statement doesn't appear on the PDF. Acceptance date + online pub. date confirmed by author (email in SAN)
PY - 2017/4
Y1 - 2017/4
N2 - This paper[1] uses the Geometric Brownian Motion (GBM) to model the behaviour of crude oil price in a Monte Carlo simulation framework. The performance of the GBM method is compared with the naïve strategy using different forecast evaluation techniques. The results from the forecasting accuracy statistics suggest that the GBM outperforms the naïve model and can act as a proxy for modelling movement of oil prices. We also test the empirical viability of using a call option contract to hedge oil price declines. The results from the simulations reveal that the single-step binomial price model can be effective in hedging oil price volatility. The findings from this paper will be of interest to the government of Nigeria that views the price of oil as one of the key variables in the national budget.
AB - This paper[1] uses the Geometric Brownian Motion (GBM) to model the behaviour of crude oil price in a Monte Carlo simulation framework. The performance of the GBM method is compared with the naïve strategy using different forecast evaluation techniques. The results from the forecasting accuracy statistics suggest that the GBM outperforms the naïve model and can act as a proxy for modelling movement of oil prices. We also test the empirical viability of using a call option contract to hedge oil price declines. The results from the simulations reveal that the single-step binomial price model can be effective in hedging oil price volatility. The findings from this paper will be of interest to the government of Nigeria that views the price of oil as one of the key variables in the national budget.
KW - Brownian Motion
KW - oil prices
KW - forecast evaluation techniques
M3 - Article
VL - 9
SP - 68
EP - 81
IS - 9
ER -