Sudden changes in crude oil price volatility: an application of extreme value volatility estimator
by Dilip Kumar
American J. of Finance and Accounting (AJFA), Vol. 4, No. 3/4, 2016

Abstract: This study provides a framework based on an extension of the Conditional Autoregressive Range (CARR) model which incorporates the impact of sudden changes in unconditional volatility. The results of the CARR model with and without volatility breaks are compared with the results of the GARCH model with and without volatility breaks to assess whether the forecasting ability of the CARR model is superior when endogenously determined structural breaks in volatility are accounted for. We undertake our analysis on WTI and Brent crude oil and find that the CARR model with volatility breaks effectively captures the dynamics in the crude oil volatility.

Online publication date: Mon, 05-Dec-2016

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