Abstract:

The increased oil prices worldwide are having a great impact on all economic activities. That’s why research on the dynamic behavior of crude oil prices has become a hot issue in recent years. Especially the recent changes in crude oil price behaviour between 2007 and 2009 revived the question about the underlying dynamics governing crude oil prices. To understand the behavior of the oil market there is a need to understand the stochastic models of oil prices. Their dynamics were characterized by high volatility, high intensity jumps, and strong upward drift, indicating that oil markets were constantly out-of-equilibrium. The aim of this study is to model oil price returns by Lévy process including the temporal, spectral and distributional properties of the data set. Our findings could be helpful for monitoring oil markets and we expect that the analysis presented in this paper is useful for researchers and energy economists interested in predicting crude oil price and return.

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