Detection of volatility regime-switching for crude oil price modeling and forecasting

• Published in: Resources policy Vol. 69; p. 101669
• Main Authors: Liu, Yue, Sun, Huaping, Zhang, Jijian, Taghizadeh-Hesary, Farhad
• Format: Journal Article
• Language: English
• Published: Kidlington Elsevier Ltd 01-12-2020; Elsevier Science Ltd
• Subjects: Autoregressive models; Crude oil; Crude oil prices; Forecasting; Forecasting evaluation; Modelling; Petroleum; Prices; Regime-switching models; Switching; Volatility; Volatility analysis; Crude oil prices; Regime-switching models; Forecasting evaluation; Volatility analysis
• ISSN: 0301-4207; 1873-7641
• DOI: 10.1016/j.resourpol.2020.101669

For crude oil price modeling and forecasting, time-discrete models like GARCH and HAR-RV have been further developed with Markovian regime-switching in recent years. Questioning on the ubiquity of regime-switching, we establish a time-continuous diffusion model governing the oil prices and detecting whether volatility regime-switching exists in different time horizons over the past decade. Model analysis and comparison with existed methods show that, during the second period we investigated, there exists no obvious volatility regime-switching, hence combining with regime-switching contributes little to its modeling. Besides, shown by this paper, existence of regime-switching and the transition rate of regime depict the long-term structure of volatility, which could be an intrinsic market property.
•We establish a time-continuous diffusion model.•The model can detect volatility regime-switching for oil prices.•We find there is no obvious volatility regime-switching.