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The Use of NYMEX Options to Forecast Crude Oil Prices

The recent introduction of traded options on crude oil futures contracts at the New York Mercantile Exchange (NYMEX) gives energy economists a new tool for forecasting the price of crude oil. Since the pricing of these options requires that market participants assess the probability distribution of future crude oil prices, a properly specified model of option pricing can be used to "back out" this assessment from observed option prices.

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Energy Specializations: Petroleum – Markets and Prices for Crude Oil and Products; Energy Modeling – Forecasting and Market Analysis

JEL Codes: G13: Contingent Pricing; Futures Pricing; option pricing, C53: Forecasting Models; Simulation Methods, D81: Criteria for Decision-Making under Risk and Uncertainty

Keywords: NYMEX options, Oil prices, Forecasting

DOI: 10.5547/ISSN0195-6574-EJ-Vol9-No4-7

Published in Volume 9, Number 4 of the bi-monthly journal of the IAEE's Energy Economics Education Foundation.


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