Forecasting Crude Oil (Spot Price) Volatility Dissertation

Forecasting Crude Oil (Spot Price) Volatility - Dissertation Example Daily prices for crude oils are effective in volatility forecasting. 17 It was also imperative to use the two cluster analysis in the paper. 17 In the case of GARCH to obtain the unknowns the formula was applied where the initial value Xk was taken to be 25.56 where a= 0.001 (fixed) 17 b= 0.00 18 c= 0.00 18 In using the same formula the values for a, b and c were P-GARCH established to be 18 a= 0.001(fixed) 18 b= 0.394 18 c= 0.050 18 Xk= 25.56 18 For GARCH GJR, the values were found to be 18 a=0.001 (fixed) 18 b= 0.488 18 c= 0.110 18 Xk= 25.56 18 for E GARCH a=0.001 (fixed) 18 b= 0.488 18 c= 0.11 18 From the findings captured in the spread sheet, we can derive various important factors about the GARCH family models and answer important questions arising from the same. These are 19 The data should be within range in order to get rid of outlier values.The data is reliable since the projection/ forecasted values are within limit. There are no outlier values as a result of projection. 19 The null hypothesis – Garch models predict uniformly 19 Alternative hypothesis- GARCH models predictions differ. Based on the results, it is clear that there exists variations among the four models. Thus it is rational to conclude that the alternative hypothesis holds. 19 The best model should be as closer to the baseline as possible. GARCH is a replica of the baseline and hence cannot be taken to be the best.Of the four GJR GARCH varies the least from the baseline hence is the best. 19 EGARCH has the largest variation from the baseline hence is the worst. 19 20 BIBLIOGRAPHY 20 APPENDICES†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.20 METHODOLOGY AND DATA Introduction Volatility is a concept that refers to the spread of all possible outcomes within an uncertain variable. Finance discipline has various unc ertain variables such as prices of products, returns on assets, and share prices amongst others (Olowe, 2010). Modeling and forecasting of volatility have been attributed to increasing uncertainty in financial aspects and components (Day & Lewis, 1993). Oil price fluctuations in the global arena experience significant uncertainties thereby invoking interests amongst financial and market participants (Kang, Kang, & Yoon, 2009). The main reasons explaining such significant interest include the fact that oil price fluctuations affect decision making process for both producers and consumers in addition to investors’ decisions. Whereas oil price fluctuations affect strategic planning and appraisal of projects for producers and consumers, investors continue to face challenges in investment, allocation of portfolios, and management of risks decisions (Campbell, Lo, & MacKinlay, 1997). Policy and decision making within the oil markets require accurate forecasting of the crude oil pri ces (Olowe, 2010). Attaining accurate and adequate forecasting require adequate and accurate data. In most cases, daily prices of crude oil are used to predict or forecast volatility (uncertainty) for purposes of developing effective policies and decision making processes (Campbell, Lo, & MacKinlay, 1997). Forecasting volatility of crude oil prices have been done for a

Case Study Example | Topics and Well Written Essays - 1500 words - 14

Case Study Example The case study also looks at the performance of the restaurant in the last few months and makes recommendations as to how the restaurant can be well position in the existing market to gain competitive advantage (Cyrek, 2009). Information on the operational systems of Queens Head exposes key strengths and weaknesses as a food and beverage operation which must become the basis for making any recommendations for the future. The table below outlines the strengths and weaknesses of the company. Queens Head lack a clear tradition position within the market in which it competes. This point is clearly admitted by Cullum who sees the development of specific destination trade as the answer to future growth. Meanwhile, Davis (2005) emphasised the importance of having a clearly identified trading position as an effective tool for growth and competitiveness. This is because the trading position used by the company helps it to develop a competitive advantage which makes it become a preferred choice over competitors due to its position. It is possible to use either Porter’s generic strategic positions or Bowman’s strategy clock to identify a trading position which will become the strategy around which Queens Head will undertake its marketing. The graph above shows that Queens Head has failed to maintain a steady growth in sales in the past 12 months. This applies to both in food sales and drink sales, which is a very worrying situation the restaurant can be finding itself in now. This is because the sales made by the company determine its revenue inflow, which is also an important determinant of capital position for competing on the market through publicity and promotions (Agarwal and Helfat, 2009). As sales have not experienced any significant growth, it will be very difficult for the restaurant to have sufficient funds which are committed to market growth areas that are