Title: Sudden changes in crude oil price volatility: an application of extreme value volatility estimator

Authors: Dilip Kumar

Addresses: Indian Institute of Management Kashipur, Uttarakhand, India

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.

Keywords: CARR model; forecasting evaluation; volatility modelling; GARCH model; crude oil prices; price volatility; extreme value volatility estimator; sudden changes; unconditional volatility; volatility breaks.

DOI: 10.1504/AJFA.2016.080717

American Journal of Finance and Accounting, 2016 Vol.4 No.3/4, pp.215 - 234

Received: 18 Mar 2015
Accepted: 20 Jul 2015
Published online: 05 Dec 2016 *

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